WASHINGTON — The Obama administration on Friday announced a major reworking of its $75 billion plan to prevent foreclosures. The new effort is designed to help two groups: unemployed borrowers and borrowers who owe more on their loans than their houses are worth.
Here's a look at the details:
How many homeowners will this help?
The effort is designed to enable the government to reach its original goal of helping 3 million to 4 million homeowners avoid foreclosure by the end of 2012. That benchmark has so far proved impossible to approach. Only 170,000 homeowners have completed loan modifications, out of 1.1 million who began the government's Home Affordable Modification Program since it started last year.
How many borrowers are in trouble?
About 6 million homeowners have missed at least two months of payments. And experts warn that 10 million to 12 million borrowers are in danger of foreclosure over the next three years. A growing risk is among homeowners who are "underwater": They owe more on their loans than their homes are worth.
How does the new plan work?
Borrowers will get help in three ways: Jobless homeowners can get a three-to-six-month break on their mortgage payments. Banks will get financial incentives to reduce mortgage balances for underwater borrowers. And lenders can offer refinanced loans backed by the Federal Housing Administration to these borrowers.
When will all these programs be available?
Government officials said they should become available in the coming months.
I'm unemployed. How do I get help?
That piece of the program is designed to give homeowners more time to find a job. Borrowers will have three to six months in which they'll have to spend no more than 31 percent of their monthly income on their mortgages. If you do find a job during that time, you will be evaluated for a loan modification that could permanently reduce your payments. To qualify, you need to live in your home, have a mortgage below $729,750 and receive unemployment benefits.
What happens if I don't get a job after the time is up?
Lenders will encourage you to consider a short sale, in which you sell your home for less than the mortgage amount. Another option is a deed-in-lieu of foreclosure, in which you agree to hand back the property to your lender.
I owe more on my mortgage than my house is worth. Will this help me?
Maybe. The program depends on the willingness of mortgage companies to participate. Their track record has been shaky.
How does it work?
Mortgage companies that already participate in the government's foreclosure prevention program will have to consider reducing the mortgage amount for borrowers who owe at least 15 percent more than their home's current value. Those reductions will happen gradually over three years and apply only if you miss no payments. Those companies will receive expanded incentives to do so.
What kind of incentives?
For every dollar of principal the lender reduces, they will receive a subsidy of 10 to 21 cents. The larger subsidies will help reduce principal of borrowers who are less underwater.
How do I qualify?
You must have a mortgage of less than $729,750. You also must show that you are in financial trouble. And you have to be spending at least 31 percent of your pretax income on your mortgage payment.
Who decides how much my home is worth and how?
There will be a reappraisal, which raises an odd scenario. Normally, when selling your home, you want the appraisal to be at a high value. Here, however, the lower the value of your home the more likely you are to be underwater enough to qualify for help.
What if there is a second mortgage on my home?
There are now additional incentives in place to write down amounts on second mortgages to help people become eligible for the FHA refinancings. You may be eligible for help with a second mortgage even if you've already qualified for help with a first mortgage.
How will a loan modification affect my credit score?
A loan modification may not affect your credit score — at least in the near future. But if you participate in the temporary payment reduction program for unemployed people, you will probably see some damage to your credit report.
So how do I apply?
Call the company that sends your mortgage bill to see if you qualify. If you can't get hold of someone, try a nonprofit housing counselor. NeighborWorks America runs a network of foreclosure counseling agencies. Try: findaforeclosurecounselor.org/.
How does the refinancing program work?
Some borrowers will be able to refinance into loans backed by the FHA, which insures loans against default. The FHA will get $14 billion in incentive money from the federal bailout fund to make this happen. Lenders will have to reduce the homeowners' primary mortgages by at least 10 percent.
How do I qualify?
Homeowners must not have missed any payments on their home loans, must live in their home as a primary residence and must provide proof of income.
How do I apply for the FHA plan?
You don't. It's voluntary for mortgage companies. They'll evaluate whether they want to offer this option to homeowners.
Information from the New York Times was used in this report.