By now, most of you have heard of the “making home affordable” program designed to help millions of homeowners refinance or modify their mortgages. The Treasury Department released details of this plan. Like most government programs, this bill has its good and bad points.
There are two main parts to the program — the home affordable refinance and the home affordable modification.
Home affordable refinance is available for up to 5 million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac. This plan is designed to help borrowers who have been unable to refinance at today’s historically low rates because the value of their primary residences have dropped so they now owe more than 80 percent of the value.
To qualify, a borrower must occupy the home as the primary residence, have a strong mortgage payment history and document enough income to qualify for the new payments. Additionally, the new mortgage must not exceed 105 percent of the property’s current market value. To determine eligibility, contact your current mortgage service provider and ask if your loan is backed by Fannie Mae or Freddie Mac. If yes, then request a good faith estimate detailing the interest rate and cost associated with the new loan to make sure it’s beneficial. Prior to committing, contact your local mortgage professional to help you weigh your options.
The home affordable modification will help up to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments. One of the more positive features of this plan is the inclusion of borrowers who are not currently behind on their mortgage payments. To qualify, a borrower must prove the home is the primary residence, verify that the borrower earns enough income to afford the modified payments, and sign an affidavit of financial hardship. The monthly housing payment must be more than 31 percent of the borrower’s gross monthly income to qualify for hardship. This payment includes real estate taxes, home and flood insurance, and home association or condo fees. It does not include second mortgages or any other liens owed.
If interested, call your mortgage servicer and ask if you qualify for modification. If so, your lender will take steps like reducing your interest rate to as low as 2 percent for five years, extending the term of your loan to up to 40 years to reduce your payment to 31 percent.
This program will not help everyone, but it is designed to help responsible borrowers who have suffered during this economic downturn. While many will argue about the government’s intervention, this plan at least attempts to stem the tide of foreclosures and, if successful, stabilize all of our property values.
Brian McMahon, a licensed mortgage broker, can be reached at (941) 720-2573.