Obama Foreclosure Rescue Program Summary

Article Written By: DavidSmith

The multitude of recent news reports out of Washington results in a lot of questions concerning President Obamas plan to reduce foreclosures. I will attempt to minimize this confusion by briefly explaining the highlights of Obamas plan. The government estimates that this plan will assist up to nine million distressed homeowners. As the Mortgage Bankers Association indicates that there are about 51 million first mortgages in the US, this means about 18 percent may qualify for this program which was launched in March, 2009. This is a summary of a very detailed program which you can learn more about by going to the US Government website at financial stability.gov.

We all know that the foreclosure problem is a very serious matter, but all of the new acronyms are starting to get a bit annoying. The new initiative is being called Making Home Affordable (also known as MHA); heres just a few of the government acronyms to keep track of: TARP, TALF, H4H, GSE, FNMA, FLHMC, PITI, FHA, VA, USDA, etc. Its starting to get a bit overwhelming even for real estate and finance professionals. There are essentially 2 parts to the program: The first is a plan to refinance eligible mortgages and it is being referred to as Home Affordable Refinance. The other part deals with loan modifications and is known as...Home Affordable Modification. Its just a matter of time until these are called HAR andamp; HAM I am predicting.

A Summary of the HAR Program:

Requires the current mortgage to be guaranteed by either Fannie Mae (FNMA) or Freddie Mac (FLHMC). To see if you meet this guideline, call (800) 7FANNIE or (800) 7FREDDIE between 8am and 8pm, EST. The property must be your primary residence; second homes and investment properties do not qualify. You must show sufficient income to qualify. Mortgage payments must be current and a one-year history must reflect no payments being 30 days late. The amount owed on the first mortgage cannot be more than 105% of the market value of your home. If your home is valued at $100,000, then the most you can owe is $105,000 Additional lien holders, as in a second mortgage, HELOC or other liens, must be willing to subordinate to the first mortgage holder, in writing. Simply put, this means that the first mortgage holder will retain their superior lien position. The total of all liens can exceed 105% of the current market value; however, the amount refinanced cannot exceed this amount. This program officially began in March of 2009.

Now comes the HAM (Home Affordable Modification):

To be eligible for loan modification, the lender must be willing to participate; Investor/Lender or servicer participation is completely voluntary. This program was designed to help avoid foreclosure if possible. Individual cases are evaluated and borrowers must show a steady source of income to prove that they can afford a modified payment. The current mortgage terms must result in documented financial hardship in order to qualify. The total current monthly payment, including taxes and insurance, must exceed 31% of the borrowers gross monthly income. This amount is referred to as PITI (Principle, Interest, Taxes and Insurance); yes, another acronym. It is not necessary for the borrowers to be current on their mortgage payments. Every situation is unique and will be evaluated on a case-by-case basis. The purpose of this plan is to reduce the financial hardship with a lower PITI payment to 31% or less of ones gross monthly income. This includes second mortgages and home equity lines of credit where lien holders are willing to participate and subordinate their liens to the new modified mortgage. The mortgage must be for a primary residence; second homes and investment properties do not qualify for this program. Subject mortgage must have been made prior to January, 2009 and cannot exceed $729,750. Though Im sure theres a reason for this being the maximum, I havent found any information supporting this amount. The reduced payment amount is achieved with a lower interest rate, an extension of the maturity date, or, as a last resort, a reduction of the principle balance owed. Realize that cooperation is voluntary and left up to the lender/servicer/investor holding the mortgage. Modification terms are for a 90 day trial period and then extended for a term of no less than 5 years, provided that the borrower is able to honor the terms during the 90 day trial period. At the beginning of the 6th year, the interest rate can be increased. Guidelines allow no more than 1% per year increase until the note reaches the Freddie Mac primary Mortgage Market Survey Rate on the date the modification is executed.

This is a brief summary, highlighting the terms and conditions of these new programs. For more information, you can visit the website at financialstabiltiy.gov.

I do hope that this new program is more successful than the H4H (Hope for Homeowners Program that was launched in October, 2008. The following information was in an article published recently by Time Magazine:

Grade: F The Plan: Enacted on Oct. 1, Hope for Homeowners was to be the main foreclosure rescue plan from Congress, which allocated $300 billion for the effort. Supporters in Congress, like Massachusetts Representative Barney Frank, said the program would allow hundreds of thousands of borrowers, perhaps millions, to refinance into lower-cost loans by cutting the amount they owed, which for many at-risk-of-default homeowners was more than their house was worth.

The Result: So how many people have Hope for Homeowners saved from foreclosure? Zero. There have been 326 applications in the three months since the program started, but none of those people andquot; let alone the nearly 6 million homeowners who, by some estimates, may face foreclosure in the next few years andquot; have received a new mortgage or a modification for the one they have. What's more, none of the major mortgage lenders, such as Bank of America, Citigroup and Wells Fargo, has signed on to the loan-principal-reduction program andquot; which gives Hope for Homeowners little chance of being successful anytime soon. andquot;Foreclosure is the problem we have to spend a lot more effort trying to solve,andquot; says the Economic Policy Institute's Robert Scott. andquot;We need to put a floor under housing prices, and stopping foreclosures is the way you do that.andquot;

I would like to disclose that this is my interpretation of the guidelines of this program and should be independently verified. Keep in mind that this is a government program; therefore, rules and guidelines are subject to change. Always keep informed

About the Author

This article was written by David Smith, president of U-Move-On, a company who helps distressed homeowners in finding the best solution to their foreclosure problem. David provides encouragement and support to help his clients cope with the foreclosure process and life after foreclosure. His unique service helps borrowers decide if they should walk away or fight foreclosure with loan modification.

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