Homeowner Affordability and Stability Plan–Refinancing and Restructuring Home Mortgages

Last month President Obama unveiled the Homeowner Affordability and Stability Plan. The plan represents a $75 billion homeowner stability initiative designed to help 7 to 9 million families restructure or refinance their home mortgages to avoid foreclosure. The plan has three key components:

  1. Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable
  2. A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
  3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac

What’s unique about the financial stability plan is that it designed to help not only those struggling to keep their homes, but also those that want to refinance, but can’t because the value of their home has fallen below what they owe.

Eligibility requirements will be announced on March 4, 2009, but a lot is already known about the plan. So let’s take a look at how the Homeowner Affordability and Stability Plan will work.

Refinancing Mortgages for Borrowers Current on their Mortgage

The Homeowner Affordability and Stability Plan may help you refinance your home mortgage to a better mortgage rate. As prices have fallen, many who would like to refinance have been unable to because their mortgage balance is more than 80% of the value of their home. In some cases, the mortgage is more than 100% of the value of their home. The plan seeks to address this by allowing homeowners to refinance up to 105% of the value of their home.

While complete eligibility details will be announced later this week, we do know this much:

  • Income: Borrowers will need to earn a sufficient income to make the new payments. This likely means borrowers new payments cannot exceed a certain percentage of their income.
  • Payment History: Borrowers will need to have an acceptable payment history. That doesn’t necessarily mean a borrower must have a perfect payment history, but this part of the plan is not intended for those unable to pay their current mortgage.
  • Freddie and Fannie: The mortgage must be held or securitized by Freddie Mac or Fannie Mae. Your mortgage company can tell you if your mortgage qualifies.

If you qualify, the Financial Stability Plan will enable you to refinance your mortgage. There are certain limitations and terms to the program, including the following:

  • Term: Borrowers will be able to refinance into a 15 or 30 year mortgage.
  • Two Mortgages: If you have more than one mortgage on your home, such as a home equity line of credit, only the first mortgage is eligible for refinancing. In addition, so long as the first mortgage does not exceed 105% of the home’s value, you may qualify.
  • Fixed Rate: All loans will carry fixed mortgage rates. The rates will be set by the market, not the government. That means if you already have a very low fixed rate mortgage, it may not make sense to refinance.
  • Mortgage Balance: This part of the plan will not reduce your mortgage balance. It will simply enable some to refinance their existing mortgage balance. In the plan described below, some will be eligible to have their mortgage balance reduced by up to $5,000.

Restructuring Mortgages for those at Risk of Foreclosure

For those already behind in their payments or struggling to stay current, the Homeowner Affordability and Stability Plan has a separate program to restructure loans. Participation in the program by mortgage companies is voluntary, but the Federal Government is offering incentives to lenders, and it is expected that most major mortgage companies will participate.

While complete eligibility details will be announced later this week, here is what we know now:

  • Primary Residence: You must occupy the home as your primary residence. Two, three and four unit dwellings do qualify so long as the owner lives in one of the units. Vacation homes, rental properties and the like will not qualify.
  • Mortgage Payments: Your current monthly mortgage payment must greater than 31% of your monthly gross income. Remember, this program is for those struggling to make their payments.
  • Freddie and Fannie: Your current loan cannot exceed the Freddie Mac and Fannie Mae loan limits.

$5,000 Incentive Payment

To encourage homeowners to restructure their mortgages under this plan, the homeowner Affordability and Stability Plan offers up to a $5,000 incentive. The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period. This incentive applies only for those who are struggling to pay their mortgage and qualify for the restructuring plan. The $5,000 incentive does not apply for those simply refinancing their mortgages.

For those that qualify, you likely will receive a letter from your mortgage company over the next several weeks about the program. You can, of course, call your mortgage company about the program beginning March 4, 2009. But call volume will be quite high.

You can find more details on the Homeowner Affordability and Stability Plan at the government’s website, FinancialStability.gov. Also, be sure to check out this comprehensive list of foreclosure help resources.

Published or Updated: April 29, 2009
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Natalie Bergman, Realtor says:

    Great article and simple explanation for the current legislation to make Americans more able to keep their homes, or to buy a home this year. Many of my clients have been asking for an explanation of how this legislation can help them save their home or save money buying a home and the doughroller does a great job of making the complex simple!

  2. John Hitchens says:

    Why only fannie may freddie mac my loan is ther same upside down variable rate now at 6.5 and can’t lock in lower. owe 226,000 house is worth 197,000. need way to much down to get to 80/20 mix they want.

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