Mortgage Modification and Refinance Plans to Avoid Foreclosure

by David Smith

Remember when all the neighbors would complain about the vacant, board-up in your neighborhood? Only one, in the entire neighborhood! Look around now; there are several on each street! Sure, there are places in some cities where this is to be expected, but now we see the same scenario in nice, suburban areas as well.

Declining real estate values and the troubled economic times have forced many responsible people to be at risk of losing their homes. Unemployment, pay cuts and the decrease in job benefits has caused millions of homeowners to face foreclosure; millions more are expected to struggle before things improve.

Though the crisis seems to be temporary, something still needs to be done to assist distressed homeowners. Sure, we will find a balance as prices continue to decline and the demand for real estate goes up, but until then, we need to decrease the number of foreclosures which add to the problem.

Vacant houses with neglected lawns are not only eyesores in the area; they are also dangerous. Kids like to have their own space; they get curious as they find a way to get into these properties. Homeless people find shelter in these empty houses and criminals also find them to be most attractive.

Obama Offers New Hope with New Programs

President Obama has launched several new programs this year that will offer assistance to about 9 million homeowners who are struggling to continue making their mortgage payments. The purpose of the program, Making Home Affordable, is to reduce the impact that the housing crisis has on families and communities, while supporting a recovery in the real estate market and assisting responsible homeowners who wish to meet their mortgage obligations.

The Making Home Affordable Program requires the cooperation of the government, loan servicers, investors and borrowers who will share the responsibility of helping people avoid foreclosure and stay in their homes.

The Home Affordable Refinance Program

This program is designed to provide the opportunity for up to 5 million responsible homeowners to refinance their mortgage. Current interest rates are at historically low levels which allow homeowners to reduce their monthly mortgage payments. Under current rules, homeowners must owe no more than 105% of their homes value in order to qualify. Millions of homeowners put 20% down when they purchased their homes; some even made additional principal payments, but are still facing problems refinancing their homes due to sharply declining market values. The Obama Administrations program offers an opportunity for responsible homeowners whose loans are guaranteed or owned by Freddie Mac and Fannie Mae to refinance through the two institutions, reducing their monthly mortgage payments to make their homes more affordable.

New Home Affordable Modification Program

This is a $75 Billion program intended to prevent foreclosures and help responsible homeowners keep their homes by modifying the terms of their mortgage. The Treasury Department is working with federal agencies on a comprehensive multi-part strategy to prevent millions of foreclosures.

This program will help millions of homeowners owe more on their mortgage than their home is worth in todays market. Many are in trouble because of the current recession; others have fallen victim to hidden fees and increased payments resulting from subprime mortgages. This program should promote security for distressed homeowners and stability for neighborhoods hardest hit by foreclosures.

The best part of this program is that all parties involved work together to share the cost of the modified mortgage. Lenders, investors, borrowers and the government cooperate with each other to achieve the ultimate goal to reduce foreclosures and avoid further downward pressure on home values.

How the Programs Work

The Treasury will work with mortgage companies and investors to make mortgage payments more affordable for distressed homeowners.

A mortgage modification will reduce monthly payments to an amount of no more than 38 percent of the homeowners income.

The Treasury shares in the cost to reduce the payment further, from 38% down to 31% of the borrowers income.

The reduced amount of the payment is kept in place for 5 years, and then the interest rate can be gradually increased by 1% per year until it reaches the capped rate that was implemented at the time of modification.

In order to achieve this lower mortgage payment, lenders are agreeing to reduce interest rates to as low as 2%. If this does not result in the 31% income-to-debt ratio, then the term of the mortgage will be extended to a period of up to 40 years. The last resort is to reduce the principal balance until the monthly payment reaches the target amount of 31% of the borrowers income.

Lender Incentives to Cooperate

A $1,000 reward is given to lenders/servicers for each eligible loan modification which meets the guidelines established under the new programs. In addition, they will receive $1,000 per year, for 3 years for each successful modification program.

Similar incentives will be offered to servicers and lenders who agree to modify or refinance FHA, VA or Agriculture Department loans, according to the new or similar programs that are in place.

Loan modifications are more likely to be successful if they are made before a borrower becomes delinquent in their payments; therefore, additional incentives are offered to mortgage holders and servicers for modifications made while a borrower is at risk of default, but still current on their mortgage.

Hopefully, things will begin to improve as homeowners take advantage of these new programs. Preventing foreclosure will result in stabilizing areas already suffering due to vacant homes.

About the Author:
This article was written by David Smith, president of U-Move-On, a company that assists distressed homeowners in finding the best solution to their foreclosure problem. David provides encouragement and support to help his customers deal with the foreclosure process and life after foreclosure. His service helps people decide if they should walk away or fight foreclosure with loan modification.

Published by: David Smith on March 29th, 2009 | Filed under Legal



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