Making Home Affordable Refinance and Modification–A 2009 Federal Program to Help Struggling Homeowners

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Today President Obama announced the details of his Homeowner Affordability and Stability Plan. The housing program has two key features: (1) a Home Affordable Refinance Program; and (2) a Home Affordable Modification Program. Both programs are designed to help homeowners stay in their home, either by refinancing their current mortgage or restructuring the mortgage. And the modification program also has a feature that can result in reducing your mortgage by $5,000 over five years.

Home Affordable Refinance Program

The refinance program is designed to help homeowners refinance their primary mortgage, even if the outstanding mortgage balance exceeds 80% of the value of the home. Under traditional financing, a homeowner cannot qualify for the best interest rates on a first mortgage if the amount borrowed exceeds 80% of the current value of the home. With historic fall in housing prices, many people who would like to refinance to a fixed rate mortgage and/or a lower rate mortgage can’t because their mortgage balance is greater than 80% of their home’s value.

The Home Affordable Refinance Program is designed to address this issue. The program is available to those who meet these requirements:

  • Is your home your primary residence?
  • Do you have a Fannie Mae or Freddie Mac loan? If you don’t know contact:
  • Fannie Mae,
    1-800-7FANNIE (8am to 8pm EST).
    www.fanniemae.com/homeaffordable
    Freddie Mac
    1-800-FREDDIE (8am to 8pm EST)
    www.freddiemac.com/avoidforeclosure/

  • Are you current on your mortgage payments? “Current” means that you haven’t been more than 30-days late on your mortgage payment in the last 12 months.
  • Do you believe that the amount you owe on your first mortgage is about the same or less than the current value of your house?

On this last point, the program is available to those whose primary mortgage does not exceed 105% of the value of their home. If your mortgage is higher than that, you could pay it down to the 105% level if you had the funds to do so.

If you think you may qualify, here are the next steps, according to FinancialStability.gov:

If you answered yes to all of these questions, you may qualify for a Home Affordable Refinance. The next step is to gather the information you will need to provide to your lender. This includes:

* Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources.
* Your most recent income tax return.
* Information about any second mortgage on the house.
* Account balances and minimum monthly payments due on all of your credit cards.
* Account balances and monthly payments on all your other debts such as student loans and car loans.

After you have this information, you should call your mortgage servicer or lender (the organization to whom you make your monthly mortgage payments) and ask about the Home Affordable Refinance application process. The number is on your monthly mortgage bill or coupon book.

If you don’t qualify for the refinance program, you may qualify for the modification program.

Home Affordable Modification Program

The Home Affordable Modification Program gives lenders and homeowners incentives to modify existing mortgages to make them more affordable. The basic idea behind this program is to reduce monthly mortgage payments to 31% or less of the homeowners monthly income. The program provides for certain payments to lenders to incentivize them to modify loans. The program also provides incentive to homeowners to stay in their homes, including up to a $5,000 reduction in the balance of their mortgage. The program is more involved than the refinance program, but it also offers potentially more benefits to homeowners. Here are some of the details of the program:

  • The mortgage to be modified must have been originated on or before January 1, 2009.
  • New borrowers will be accepted until December 31, 2012. Program payments will be made for up to five years after the date of entry into a Home Affordable Modification. Monitoring will continue through the life of the program.
  • The home must be an owner occupied, single family 1-4 unit property (including condominium, cooperative, and manufactured home affixed to a foundation and treated as real property under state law).
  • The home must be a primary residence (verified with tax return, credit report, and other documentation such as a utility bill).
  • The home may not be investor-owned.
  • The home may not be vacant or condemned.
  • Borrowers in bankruptcy are not automatically eliminated from consideration for a modification.
  • Borrowers in active litigation regarding the mortgage loan can qualify for a modification without waiving their legal rights.
  • First lien loans must have an unpaid principal balance (prior to capitalization of arrearages) equal to or less than:
    • 1 Unit: $729,750
    • 2 Units: $934,200
    • 3 Units: $1,129,250
    • 4 Units: $1,403,400

Under the program, lenders would reduce the interest rate on the mortgage to no less than 2% to bring the homowners monthly payment to no more than 31% of the homeowner’s monthly income. The interest rate would stay at that level for five years, and than increase each year by no more than 1% until it reaches a certain defined cap.

As you can see, there are a lot of details about the modification program. If you think you may qualify, your best bet is to contact your lender. You can also find complete details of the program here.

Published or Updated: October 28, 2012
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. RAJEEV TIPS says:

    Great read.. very well written and informative. thanks!!

  2. Timothy H Gonyea says:

    we need to have our loan modified to lower our payments due to losing job and just now finding one 8 months working 2 very low paying jobs just to make monthly payments some times sending it late but we made it so far

  3. Kristine Cornelius says:

    I’ve had health problems for about 5 years and now am finally able to work fulltime again. Thus, I no longer am at the same job as a court reporter I worked 5 years ago and am having trouble finding any kind of a job right now. I was too sick to work fulltime until now. I have accrued many medical bills and owe every relative of mine money trying to pay my mortgage, medical bills, and just day-to-day bills. I just can’t do it anymore! I have been trying to get a loan modification for over a year and a half now through Chase. I’ve never had more problems dealing with anyone in my life. I wish they would just be honest with me and tell me that they weren’t going to help me and quit wasting my time and energy and making me so depressed trying to jump through their hoops and then just telling me, “One more week, one more week, it’s in underwriting. Oh, wait, we never got this information. We never received this or that.” After I’ve sent EVERYTHING they’ve asked probably 18 times — even took all paperwork into the bank myself numerous times. I went to an attorney last week and go back tomorrow. They want me to pay them $4,500 and can’t guarantee what they will do for me, if anything. The attorney told me that Chase are very hard to work with and may not do anything for me. Am I doing the right thing by paying this attorney all this money I don’t have and still maybe losing my house and then in turn maybe getting way behind in my mortgage payments and then maybe losing my house because I get too far behind in my mortgage payments by paying the attorney, or will Chase not help me unlsess I get an attorney? Please somebody help with some guidance!!! Is Consumer Credit Counselors a better route, or just trying to do it myself? I just don’t see any help coming doing it myself. Thanks for the time!! Kristine

    • DR says:

      Kristine, you might want to talk to a mortgage foreclosure counselor first. HUD maintains a list of counselors, which you find by clicking here. I know dealing with banks can be frustrating, but don’t give up! Good luck.

  4. JT says:

    If more people would live within their means, save up for a down payment on a home, save for an emergency, and spend more time managing their financial lives, programs like this wouldn’t be necessary.

    Personal Responsibility. What a concept.

  5. jdavis says:

    i am currently making trial payments for the in house mod with boa but they are reviewing me for the making home affordable

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