Obama’s Making Homes Affordable Program
The Department of the Treasury has released further details on what the Making Homes Affordable Program will cover.
First, the Treasury department estimates that it will offer assistance to nearly 9 million homeowners. So who gets assistance? Well here is the summary:
Affordable Refinance Program: If you have a solid payment history and your mortgage is owned by Fannie Mae or Freddie Mac, you may qualify.
-This will let borrowers refinance at today’s low rates with loan to value ratios of less than 80%. This should help you qualify for new loans even though your house has lost value. If you have paper work on file, the refinance should be easy and may not require an appraisal.
Home Affordable Modification Program: This is designed to help homeowners avoid foreclosure by reducing monthly mortgage payments through loan modifications. The rules are complex, but here are the minimum guidelines:
- Loans must have originated prior to January 1, 2009.
- Single family homes over $729,750 unpaid principal balance do not qualify. Owner occupied properties with 2-4 units do not have mentioned limit.
- You must fully document income with pay stubs and tax returns. A signed affidavit of financial hardship is also required.
- Property must be owner occupied and supported by proof.
- Incentives to lenders and servicers to modify at risk borrowers who have not yet missed payments.
- Loans can only be modified once under program and ends December 31, 2012.
What are the terms of the loan modification:
(I have left out some of the NPV calculation and tests since they are complicated and hard to understand without an accounting understanding. The full regulations are posted on the Department of the Treasury website)
- Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of gross monthly income (DTI).
- The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%), then if necessary extending the term or amortization of the loan up to a maximum of 40 years, and then if necessary forbearing principal. Principal forgiveness or a Hope for Homeowners refinancing are acceptable alternatives.
- The program will share with the lender/investor the cost of reductions in monthly payments from 38% DTI to 31% DTI.
- Servicers that modify loans according to the guidelines will receive an up-front fee of $1,000 for each modification, plus “pay for success” fees on still-performing loans of $1,000 per year.
- Homeowners who make their payments on time are eligible for up to $1,000 of principal reduction payments each year for up to five years.
- The program will provide one-time bonus incentive payments of $1,500 to lender/investors and $500 to servicers for modifications made while a borrower is still current on mortgage payments.
- The program will include incentives for extinguishing second liens on loans modified under this program.
Judicial Modifications to Home Loans Program: This lets courts mandate write downs or other options for homeowners in Bankruptcy. Current laws do not allow this practice.
Special Circumstances for High Debt to Income Individuals: If you have a debt to income ratio of more than 55%, you can still qualify for the programs above, but you must enter into a hud-certified consumer counseling program.
There is much more under this program, but the above items cover the main things that really impact borrows. If you want full details try the following links:
Don’t believe the government’s “summaries” of what they are doing for you. If any of this is actually in the bill, please tell me the page numbers, because I have read it, and I don’t see it. The “Housing and Economic Recovery Act” of 2008, called the “Housing Foreclosure Prevention Act” here on your site, does begin to address these programs, but what made it into these bills is seldom what their sponsors, say they are going to do in their press releases. Obama tried to put mortgage modification in the 2009 Bill, but it was rejected. Again, I’m willing to believe I missed an important paragraph in the 600+ pages of these 2 Bills, but only if you show me the page number.
I share your pain in finding how these things work in the bills that are passed. For this program, the bill that allowed Obama to start the Making Homes Affordable program actually come from the TARP legislation. In the TARP legislation, the Secretary of the Treasury has the ability to define commercial and residential properties as troubled assets.
The exact definition is as follows: Residential or commercial mortgages and any securities obligations or other instruments that are based on or related to such mortgages, that in each case was originated or issues on or before March 14, 2008, the purchase of which the Secretary [of Treasury] determines promotes financial market stability. See sections TARP § 101 (a) (1), TARP, § 2 (9)(A.), and § 2 (9)(A) for more information.
As you can see a very broad definition. This basically gives the government the ability to define any commercial or residential loan or security under the TARP legislation and promote or create programs in its power to stabilize the assets.
The final details will be released to the public on 4/6/09. In this case, the summary on the US Treasury site is the governing law. The rules and details are not left to vote on since the power was granted solely to the US Treasury to govern the 800 Billion under the TARP legislation.
OK it is April 7, 2009. I have repeatedly contactedly my mortgage holder about this so called “making home affordable” bill. To this date I keep being told phase 1 is not going to help me. I obtained my mortgage 2 years ago and have not missed a payment. To take advantage of the new interest rates and lowering my payment would give me some breathing room. I have paid extra principle every month and reduced my principle more than necessary but the property values have dropped in my area as they have in most places. The bank tells me there is a phase 2 coming out that may help me call back in 1 – 2 months. What is phase 2 going to include? What does phase 1 include? Do I need to let a payment go by without payment to qualify for a refinance? I have a conventional loan.
Sorry to take so long to answer your question. Had some server problems and could not gain access. Anyways, the program and what the banks are doing changes daily. Even 30 days ago the market was different. The best advice is to keep trying your lender to see if they can work something out for you. I would never miss a payment intentionally. It may seem like that is better route to get what you want but you are going to hurt your credit. I know the FHA loans are lending up to 105% of the home value and in some cases helping good borrowers write down the difference between the home value and what you owe to 105%. It really depends on your unique situation. I called thirty days ago to refi and could not improve upon the loans I already had. I called again a few days ago and the rate was 15% better than the original offer now making it worth my time to refi. The market changes every day, so be persistent and keep trying.
I have repeatedly contacted my mortgage company regarding refinancing under the “making home affordable” plan and have been told that Phase 2 is STILL not up and running. I do not qualify for Phase 1 as I pay PMI on my loan. WHEN will Phase 2 be up and running? My home has depreciated in value by $20,000 since I purchased in in Jan, 2008. This whole “making home affordable” progam is beginning to sound like a big scam to me. Any help you can provide will be appreciated.
I have not heard anything about PMI being an issue and that sounds like an excuse by the bank. If your loan is a Freddie or Fannie owned security and you pay on time, there is a good chance you qualify. I am not aware of a Phase II, but I will do some looking into it and post anything I find.
Best advice, confirm you loan is owned by Freddie or Fannie. I believe the making home affordable site has a link to check this. Don’t pay anyone to look it up as it is free information from Freddie and Fannie. If it owned by them, then you have to work with your lender from the right department.
Best advice is be nice, inform them you may have hardship in the future and need to talk to a loan modification person. It may take several people to find the right person, but every bank has a department handling loan modifications. Once you are there, they should be more willing to help and listen to your situation. Good Luck.