Obama's "Making Home Affordable" Plan

On March 4, 2009, the Department of the Treasury released new guidelines to banks for the Making Home Affordable program. The full guidelines can be found here. These guidelines are used by many banks to qualify homeowners for a Refinance or a Loan Modifications.

Here is a summary of the eligibility requirements:

1. You have a Fannie Mae or Freddie Mac mortgage
2. You must have solid payment history on your loan (less than 30 days late on any payment)
3. Your loan originated on or before January 1, 2009.
4. Owner Occupied dwelling - status will be verified
5. First Lien Loans - if you have 2 or more mortgages, only the first will be affected

What does this mean for those of us in the lower Hudson Valley in New York?

Not too much. Housing prices here have been higher than what Fannie Mae or Freddie Mac were willing to lend on. As a result, very few if any loans are Fannie Mae or Freddie Mac loans so very few if any will qualify for a Refinance. You may qualify for a Loan Modification, though. Use the self-analysis tool to see if you qualify.

Also, the guidelines seem intended to help people who are current on the mortgages. If you’ve missed a payment, you may not qualify.

The Making Home Affordable program is also trying to have lenders reduce monthly payments so that they are NO MORE than 31% of your GROSS INCOME (click here to check your payment). The lenders will go through scenarios to see what payment plan will get you to a payment that is 31% of your gross income or less. This monthly payment is to include:

• Principal
• Interest
• Taxes
• Insurance
• Flood Insurance
• Homeowner’s Association/Condo Fees

Homeowners should be mindful that the lender is still entitled to a return on their investment. They lent the money and are entitled to a return on that money in the form of interest. If reducing the payment to 31% of your loan does not allow the investor a return on their investment, they will most likely not approve a Loan Modification. When might this happen? Well, property taxes in the NYC area are very high. Take your total taxes and insurance payment for the year and divide by 12. This is your monthly tax/insurance escrow payment. If this escrow payment takes up a large portion of your monthly loan payment, your lender may not be able to make any money on from the mortgage. In this case, they may deny the modification.

My Bank is trying to foreclose on my home. What are my Options?

If your lender is trying to foreclose on you property, you will typically have 7 options available to you. They are:

1. REINSTATE THE LOAN: This option will work for anyone who has come into a large enough sum of money to pay back all of the missed payments, late fees, attorney fees, and any other fees the lender applies.
   
   
2. REFINANCE: This is becoming more difficult and usually requires a substantial amount of equity in the property.
   
   
3. LOAN WORKOUT: Work with your lender to do either a Forebearance or a full Loan Modification. A Forebearance is a temporary reprieve from the foreclosure while you catch up on missed payments. A Loan Modification is when the lender agrees to modify either your interest rate, loan term (months to pay back the loan), reduces the principal owed on the loan, or some combination. Many banks are now working with homeowners to modify interest rates and loan terms to reduce monthly payments so that they fall within 31% to 38% of your gross income.
   
   
4. SELL: If you have lost enough income where you cannot qualify for a Loan Modification because you either cannot afford even the minimum payment or debt-to-income ratio exceeds a certain amount, your lender may ask that you sell the house. In today’s market of falling house prices, selling usually requires a Short Sale – an agreement in which your lender agrees to accept less than the full principal balance owed on the property at closing. By agreeing to this, the seller usually does not need to bring additional funds to the closing to pay off the balance of the mortgage.
   
   
5. DEED IN LIEU OF FORECLOSURE: This is where you hand over the deed of the house to your lender rather than going through the foreclosure process. You must qualify for a Deed in Lieu.
   
   
6. BANKRUPTCY: Filing either Chapter 7 or Chapter 13 will postpone a foreclosure, not prevent it. CONSULT AN ATTORNEY if you are considering Bankruptcy.
   
   
7. DO NOTHING: Let the foreclosure process simply run it’s course until the house goes to auction.

If you are falling behind in your mortgage, the MOST important thing to do is ACT! Either call your lender or a HUD Certified Housing Counselor. The U.S. Department of Housing and Urban Development is a good place to start as they have an overview of an action plan.

A New Way Forward

Karen and I started this blog as a resource for homeowners who are facing foreclosure as well as real estate professionals who are associated with properties in foreclosure.

Karen and I are in the real estate business and in working with homeowners, we have come to realize that, not only do people have too little information, but they also have some bad information. Without the right information, it's hard to make a decision, and then to feel comfortable with that decision.

Since there are so many foreclosures happening at this particular time in our country's history, and we have unprecedented outlets for news and information, you will find there to be not too little information, but too much information. So much so, that you may be easily overwhelmed by it all. And when you're feeling overwhelmed, you're less likely to take the action you need to solve the problem. The good news is, like any other problem, it ALWAYS has a solution.

Our goal is to help you find your solution - Your New Way Forward.