Mortgage Rescue Plan

Christine AndreskiOn March 4, 2009, President Barack Obama announced a $75 billion mortgage rescue plan providing affordable mortgage terms for countless American at-risk homeowners. His plan stabilizes the faltering housing market by allowing millions of families to refinance or restructure their at-risk mortgages. Those facing foreclosure and those who have “played by the rules,” and continue to struggle with their house payments see this program as a ray of hope.

The Homeowner Affordability and Stability Plan is the administration’s lifeline to struggling homeowners with basically two options. The first option targets those owing up to 105% of their home’s worth, thus qualifying them for low-cost refinancing. The second option targets those who have missed a payment or who are at risk of doing so because their mortgage is more that 31% of their gross monthly income. This second group of homeowners, may qualify for loan modification. For these struggling homeowners, applications for assistance became available on March 4. Refinancing remains available until June 2010 and loan modifications are available until December 31, 2012.

As with any plan there are restrictions in place. The only qualifying home loan is a primary residence. Real estate investment property is exempt. A property with up to four units qualifies IF one of those units is the owner’s primary residence.

The refinancing component of the mortgage rescue plan essentially allows lenders to waive the 80% loan-to-value ratio, usually required for a refinance, with the following restrictions:
• Your current mortgage must be a “conforming” loan held by government-sponsored mortgage entities Fannie Mae and Freddie Mac which own or insure about half of the nation’s $12 trillion in mortgages.
• The mortgage needs to be less than $417,000 (or the $729,750 cap in Los Angeles, New York, and other high-cost areas). You’ll need to call your lender to find out if your loan conforms.
• Your payment history must be in good standing with no more than one 30-day late payment in the past 12 calendar months.
• You are able to pay the new monthly payment.
• Your new monthly payments do not exceed 31% of your gross monthly income.

The low-cost refinance will be most attractive to homeowners whose current mortgage is:
• A fixed-rate mortgage – at least 6.5% – and the savings from a lower mortgage rate allows the homeowner to recoup the closing costs in 24 months or less.
• The homeowner has an adjustable mortgage rate that is likely to adjust to a significantly higher rate before a future sell.

So what about those homeowners who are able to pay their monthly payments but their home is worth less than their mortgage? Unfortunately, there is nothing risky about owing more than your home is worth… that is, unless you need to sell the property quickly or you are looking for a home-equity loan. Real estate experts are suggesting improving the property to add value until you are ready to sell.

Unfortunately, there are homeowners whose property value is upside down – and refinancing is unlikely. There are also homeowners who really can’t afford their payments but don’t qualify under the mortgage rescue plan. Experts are advising these unfortunate homeowners to talk to their lender and ask about other options such as deed-in-lieu (of foreclosure) or short-sale. Call before you fall behind in payments. The loss-mitigation department should work with you since foreclosure may hurt the lender.

For more information on the mortgage rescue plan please see:

http://www.ustreas.gov/press/releases/tg33.htm

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