Two plans to help homeowners
If you missed details last week of President Obama's new mortgage relief plan, here's your cheat sheet. The "Making Home Affordable" program is designed to work with lenders to modify the loan terms for up to 4 million homeowners and to refinance up to 5 million homeowners into more affordable fixed-rate loans. Homeowners looking for government assistance can try to refinance their mortgages at today's low rates. If this is not an option, borrowers can apply to renegotiate the terms of their loan under the program. If all else fails, the Obama administration hopes Congress will pass legislation allowing bankruptcy judges to reduce principal amounts or interest payments. The House passed such a bill last week, and the Senate expects to take one up as early as this week.
Find Florida housing counselors, tips to avoid foreclosure and more at links.tampabay.com.
Plan 1 | Removing a limit on refinancing for strong borrowers (Starts immediately, runs until June 2010)
. A family's home value drops to $400,000 from $475,000. The loan balance at $337,460 is more than 80 percent of the home's value, making it hard to refinance under current rules.
. The family could refinance to 5.16% from 6.50%, which would save $331 a month.
Who may qualify
• Mortgages must be owned or guaranteed by Fannie Mae or Freddie Mac.
• Borrower must have enough income to handle payments.
• Borrowers must owe no more than $729,750. The loan amount may be higher for multifamily units.
• Property must be owner-occupied.
• First mortgage must not be more than 105 percent of the home's current market value.
• Delinquent borrowers do not qualify.
How to apply
Borrowers must contact loan servicer and provide:
• Two recent pay stubs
• Latest tax return
• Information about any second mortgage
• Information on other debts, such as car loans
Plan 2 | Helping modify loan terms for at-risk borrowers (Starts immediately, new borrowers accepted until Dec. 31, 2012)
. A family's home value has fallen to $189,000 from $230,000 but it owes $214,016. The family can't afford payments and can't refinance.
. If the family can get a loan modification, its monthly payments would be reduced to 31 percent of monthly income for five years. This would save $406 a month.
Who may qualify
• Mortgage must have been created before Jan. 1, 2009.
• Borrowers must be owner-occupants of a one- to four-unit home and owe no more than:
• The mortgage payment (with taxes, insurance and dues) must exceed 31 percent of gross monthly income.
• Borrowers can qualify whether delinquent or not, but must have enough income to handle modified payments.
• Borrowers with home equity loans and second mortgages are not disqualified.
How to apply
• Borrowers must contact loan servicer and provide:
• Two recent pay stubs, recent tax returns
• Affidavit of financial hardship
• When an applicant is at least 60 days delinquent, the loan servicer must modify the loan if doing so incurs less cost than pursuing foreclosure.
How the loan is modified
• Lenders would lower mortgage payments to 31 percent of income by:
• Dropping rates to as low as 2 percent
• If necessary, extending the loan term to up to 40 years or accepting principal payments without interest
• After five years the rate may rise, but only to the market level at the time of the modification.
• Borrowers who pay on time would receive up to a $5,000 reduction in principal over five years.
• Servicers of mortgages that are paid on time would receive up to $1,000 a year for three years.
• Servicers will get $1,000 for modifying a delinquent loan; $1,500 for modifying a nondelinquent loan.
New York Times, Associated Press; Source: Treasury