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

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.