The U.S. Department of Treasury announced guidelines for participating lenders to begin modifications of eligible mortgages under the Homeowner Affordability and Stability Plan.
The Homeowner Affordability and Stability Plan consists of two initiatives:
1) Home Affordable Refinance
2) Home Affordable Modification
The Home Affordable Refinance program will help 4 to 5 million homeowners suffering from falling home prices and applies to mortgages owned and/or insured by Fannie Mae and Freddie Mac:
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Available to homeowner-occupants who are current in making loan payments, allowing them to refinance their loan to take advantage of lower mortgage rates, or to refinance an adjustable-rate mortgage, ARM, into a 30 or 15 year fixed rate loan.
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Borrowers cannot be late by more than 30 days during the most recent 12 months
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Refinancing Program does NOT change the Principal amount owed, it allows to lower the interest rate and change the loan package.
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Borrowers who are currently delinquent on their mortgage will not qualify for refinancing – see Modification program below.
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Homeowners must have loan-to-value ratios (LTVs) above 80 percent but not more than 105 percent – loan balance cannot exceed property value by more than 5%
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NOTE: LTV was increased to 125% July 1, 2009
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The mortgage relief plan will not help homeowners whose loan-to-value ratio is more than 125%
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Homeowners must prove sufficient, stable income
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Borrowers will pay the current mortgage interest rates, plus lender points and fees - Fannie will permit borrowers to finance those fees entirely by rolling them into the replacement loan amount. Freddie will allow financing of escrow fees, prepaid items and closing charges up to a limit of $2,500
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Cash-out refinancing is not permitted
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The program allows refinancing of eligible second home and investor loans – contact your lender for details.
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Mortgages that do not have Private Mortgage Insurance in force do NOT have to obtain it even if loan-to value is greater than 80% – in general, lenders require PMI for loans when equity in the home is less than 20% (unfortunately, in foreclosure, the PMI worked against the homeowners because the lenders knew they can cash-in on the Private Mortgage Insurance and had no incentive to work with the borrowers).
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The program begins April 1, 2009 and ends in June 2010.
The Home Affordable Modification program will help 3 to 4 millions of at-risk-of-default or already in default homeowners and applies to mortgages owned/serviced by lenders participating in the Making Home Affordable Program,
- Loan must be originated on or before January 1, 2009
- Must be a Primary Residence
- Mortgages on two, three and four unit properties are eligible as long as the borrower lives in one unit as the primary residence
- Mortgage must be less than or equal to $729,750. Higher limits allowed for owner-occupied properties with 2-4 units
- The program shares the cost of reducing mortgage payments from 38% of gross monthly income to 31%
- All borrowers must have fully documented income, sign IRS 4506-T form, provide two most recent pay stubs, and most recent tax return
- All borrowers must sign an affidavit of financial hardship: loss of job or loss of income
- Borrower need not wait to become delinquent with the payments — a plan can be put in place as soon as the homeowner has trouble making mortgage payment
- No investor-owned, vacant, or condemned properties qualify for loan modification under the plan
- Primary residency status will be verified through borrower credit report and other documentation
- Borrowers with second mortgage are eligible, but only the first mortgage is eligible for a modification
- Loans can be modified only once under the program
- There is no cost to the borrowers for a Home Affordable Modification – if there are costs associated with the modification, such as payment of back taxes, the servicer will add those costs on to the amount owed. The servicer will also forgive any late fees.
- The Home Affordable Modification program ends December 31, 2012
- Lenders participating in the program may reduce interest rates, lengthen the payment time frame or take other steps, such as principal forbearance, to bring the monthly payments down to as low as 31 percent of the borrower’s gross (pre-tax) income
- Only the borrower’s servicer who is participating in the program will be able to tell if the borrower qualifies – Servicer participation in the program is voluntary. However, the government is offering substantial incentives to servicers and investors to participate.
- Treasury is providing incentives to write the interest down as low as 2%, if necessary to get to a payment that the borrower can afford based on their income – 31% of monthly income
- FREE, HUD-approved counselling at 1-888-995-HOPE (4673)
Borrower Questions and Answers
Eligibility Quiz to see if you qualify for the The Home Affordable Refinance program.
Eligibility Quiz to see if you qualify for the The Home Affordable Modification program.
To find out if your loan is owned by:
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Fannie Mae: check the monthly coupon book, or Call 1-800-7FANNIE (8 a.m. – 8 p.m. EST), or visit http://www.fanniemae.com/homeaffordable
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Freddie Mac
1-800-FREDDIE (8am to 8pm EST)
www.freddiemac.com/avoidforeclosure
NOTE: To learn how to avoid foreclosure, visit http://www.hud.gov/foreclosure/
NOTE: For details contact your lender and tax accountant.
SOURCE: HUD; Fannie Mae; Freddie Mac
