Make Homes Affordable Program: Alternatives to Loan Modification Through Making Home Affordable
There’s been a lot of chatter about Obama’s administrations Making Home Affordable Program. This program announced in March of 2009 has two components to it: 1) the Home Affordable Refinance Program or HARP for short and 2) the Home Affordable Modification Program also known as the HAMP program. The primary objective of the Making Home Affordable Program is to help stabilize housing prices. By helping you to stay in your home that puts one less foreclosure on the marketplace that ends up selling at a lower than market price – which in turn helps to stabilize the value of everyone else’s home around you. The government believes that by helping to stabilize the housing market and help to keep people in their homes it will help to stabilize the broader economy.
The Nuts and Bolts of Make homes affordable program. If your mortgage is held by Fannie or Freddie, you may be eligible to refinance if 31% of your monthly income is greater than or equal to the monthly payment on a 30 year fixed mortgage at the current market rate. The property in question must have lost market value to the point where you have less than 20% equity, and are thereby unable to refinance on the open market. While properties with some negative equity (that are slightly “underwater”) are eligible, the loan cannot be for more than 105% of the market value of the property. If your mortgage is NOT held by Fannie or Freddie, or, if it is and and you don’t meet one or more of the other criteria, you may be eligible for a five (5) year loan modification. The goal of the modification is to reduce your monthly payment to 31% of your gross (pre-tax) monthly income. This is accomplished by temporarily reducing the interest rate on the loan. If the interest rate required to reduce the monthly payment to 31% of income is less than the payment on a 30 year fixed loan at the current market rate, the interest rate on the loan is then gradually stepped back up on a yearly basis until it matches the current market rate at that time of participation.
In trying to get to a monthly payment that is 31% of your income, the lowest effective interest rate that a lender may offer is 2%. If a 2% interest rate does not result in a monthly payment that is 31% of your income, the lender might, in some circumstances either extend the term of the loan or forego principle on the loan. Principle forbearance might be on a permanent basis, but more likely it will be on a temporary basis resulting in an eventual balloon payment. The major distinction between these two types of mortgages under the MSA is that 1) mortgages held by Freddie and Fannie could be eligible for refinancing and 2) Mortgages that are privately held may qualify for loan modification. There is a widely held notion, fueled perhaps by the lack of valid information on the MSA, that it is only available to homeowners with mortgages held by Freddie Mac and Fannie Mae. Although the MSA makes a distinction between Freddie and Fannie mortgages and private mortgages, the relief available is actually very similar. The MSA categorizes Freddie and Fannie mortgages separately from other mortgages, because Freddie Mac and Fannie Mae are now, in effect, owned by the federal government and must conform to the direction of the Treasury Department. TARP and the MSA. The power to implement the MSA was given to the Treasury Department under the TARP legislation. TARP was passed by Congress in January of 2008. Although known for the bailout of major investment banks, TARP also has a provision related to troubled mortgages.
For participating lenders in the HAMP program the Federal Government has sweetened the pot by giving them an incentive to modify an applicant’s loan. For each of the first 5 years of the modification the Feds will pay your lender a certain amount per month for accepting the modification. In addition, as a homeowner, if you make your new modified payment on time you may be eligible for $1,000 in principle reduction for every year you make your payments on time – up to 5 years.
It is up to your particular lender to determine how they want to modify your loan – they don’t always have your best interests at heart so be careful. If you feel the new terms they are offering you are going to put you in a worse situation down the road you do have options. You should consult your attorney or a reputable company that regularly deals in loan modification such as SureFast Loan Modification.com. These competent professionals can help to make sure you get the best deal possible and don’t get taken advantage of by your bank.
Learn more about Obama Mortgage Relief Plan Qualifications.
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