If the current economic slump is making it difficult for you to meet your mortgage obligation, you are not alone. You may be eligible to reduce your mortgage payments through the Obama administration’s “Making Home Affordable” program. You will have to act quickly however: the program is slated to end in June 2010.
Not all homeowners are eligible for the program. Under the Obama administration’s guidelines, you are only eligible if your mortgage predates 2009. Real estate speculators need not apply: assistance is only available to owners who live in their homes.
Homeowners who are behind on their payments only qualify if they are seeking to modify a mortgage on a primary residence that amounts to less than $417,000 (or $729,750 in areas like California and New York whose real estate prices are inflated.) Homeowners who have not missed payments but whose mortgage “payments” constitute more than 31% of their gross monthly income may also be eligible if Fannie Mae or Freddie Mac hold their mortgages. (“Payments” here is loosely construed to include property taxes and home insurance.)
The Obama administration is offering financial incentives to encourage mortgage lenders to participate in the program. Many of the nation’s largest mortgage servicers including Wells Fargo, Citibank and Bank of America have already indicated they will be taking part in the program.
Types of Loan Modification
- Reducing Interest Payments
The primary goal of mortgage servicers will be to reduce mortgage payments so that they are 31% or less of the homeowner’s grow monthly income.
Initially they may manipulate interest rates to achieve this end. A lender may switch a loan with an adjustable interest rate to a fixed rate; alternatively, they may cut the interest rate for a specified interval of time (generally between two to five years.) Interest rates may be lowered to as little as two percent.
The newly negotiated interest rate will remain in effect for five years, after which it will gradually increase by a percentage point each year until it meets the Freddie Mac Primary Mortgage Market survey rate in effect at the time of your loan (currently 5.15% on a 30-year fixed-rate mortgage.)
- Extending the Life of the Loan
If lowering the interest rate to 2% on the mortgage loan does not succeed in lowering homeowners’ payments to less than 31% of their monthly income, then loan terms can be extended up to 40 years.
- Reducing Mortgage Principal Payments
Lenders are not required to reduce the actual amount of any loan per se. (Any principal reduction, of course, would have to be approved by the institution’s investors – who still might see this as a viable alternative to foreclosure.)
All borrowers participating in this program, however, will be given the opportunity to reduce their principal by $1,000 for up to five years if that modification reduces their monthly payment by 6% or more.
Some banks have been working independently of the Obama administration’s “Making Home Affordable” program to offer struggling homeowners relief through interventions of their own.
The Bank of America recently launched its principal reduction plan in conjunction with its National Homeownership Retention Program. The program is aimed at individuals who find themselves saddled with mortgages in excess of their home’s assed worth.
In order to qualify, you must have a loan from Bank of America or Countryside and be 60 or more days behind in payments. The program is available in 44 states and the District of Columbia, and the Bank of America estimates that approximately 45,000 customers will be eligible. If all participants adhere to the terms of the program and complete it, three billion dollars worth of principal stands to be reduced.
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