Sunday, March 8, 2009

Mortgage Refinancing and Modification (Non-Bankruptcy) - President Obama's "Making Home Affordable Program"

Updated information for homeowners is available on President Obama's "Making Home Affordable Program" including refinancing and modification options. Fannie Mae and Freddie Mac have also released further information. The following summary of the information would appear to reflect some of the features of the programs, but further inquiry should be made directly with these federal websites as well as with the appropriate mortgage servicer, lender, or governmental agencies.

- Fannie Mae/Freddie Mac Owned or Controlled Mortgages

Homeowners (owner-occupants, 1 to 4 unit property) may be eligible for refinancing. Under this program Fannie Mae and Freddie Mac may refinance certain mortgages loans that they own or control.

Eligibility Criteria:
  • Borrower current on mortgage (or not more than 30-days late during the last 12 months)
  • Balance owed on first mortgage is about equal (up to 105%) to the current value of the home (value determined after application)(agreement of any second mortgage holder may be required)
  • Homeowner has stable income to support the new mortgage payment
Refinancing Terms:
  • Interest rate per market rate (may vary by lender and over time)
  • 30 to 15 year fixed rate loans
  • No prepayment penalty
  • No balloon
  • No reduction in principal amount
  • Transaction costs, such as appraisal or title report may be included in refinancing
Application Process:
  • Apply through mortgage servicer or lender
  • Determine Fannie Mae/Freddie Mac Ownership or Control per inquiry with mortgage servicer or confirmation with Fannie Mae (800) 7FANNIE or Freddie Mac (800) FREDDIE
  • Gather paycheck stubs, recent tax return, information on second mortgage, information on monthly payments for credit cards, student loans, and car loans
  • Streamlined processing by lenders/brokers using Fannie Mae platform
  • Fannie Mae "expanded refinance flexibility ends in June 2010"

Modification - "Most Conventional Mortgages" (Excluding Second Mortgages)

Homeowners (owner-occupants, 1 to 4 unit property) who are already behind or are struggling with a mortgage may be eligible for modification.

Eligibility Criteria::
  • May be current, delinquent or struggling with present mortgage
  • Unpaid principal balance is equal to/less than $729,750.00 (higher for 2 -4 unit property)
  • Loan originated before 1/1/09
  • Present mortgage payment (including taxes/insurance/association dues) is more than 31% of gross (pre-tax) monthly income
  • Present mortgage payment no longer affordable
Eligible Mortgages:

Include "most conventional loans" (except second mortgages) held by private lenders or owned or controlled by Fannie Mae or Freddie Mac or held by a mortgage backed security including
  • prime mortgages
  • subprime mortgages
  • adjustable mortgages
  • FHA, VA, and USDA mortgage not yet eligible (but may be soon, but presently may be modifiable under other programs)
Other aspects of the modification program are:
  • Participating servicers/mortgage holders to be posted at
  • Patience requested as Treasury just published program requirements on 3/4/09
  • Mortgage servicer to evaluate eligibility if behind more than two or more payments
  • Mortgage servicer participation is voluntary, but there are incentives to servicer
  • No cost to borrower for "Home Affordable Modification"
  • No charge for assistance from HUD-approved housing counseling agency (888) 995-HOPE
  • HUD-approved housing counseling required if mortgage payment as modified together with second mortgage, car loan, credit car, and child support exceed 55% of gross monthly income
  • Servicer to determine if cost of modification (including government incentive) less costly than foreclosure
Modification Terms (to Payment of 31% of Gross Monthly Income):
  • Trial modification - 3 months at new rate as low as 2% to reach payment of 31% of gross monthly income
  • Permanent modification thereafter if current after 3 months
  • If modified interest rate is below market rate -fixed for first 5 years and then may increase not more than 1% per year until reaches cap based on prevailing interest rate as of date of modification
  • If modified interest rate is at or above market rate, modified rate is fixed for life of loan
  • Modification payment to include escrow for taxes and insurance
  • Successful borrowers on modified mortgage may receive success incentive by U.S. Treasury over 5 years up to $5,000.00
Other Types of Modification May Be Considered by Servicer: (If a 2% interest rate will not result in an affordable payments of 31% of gross monthly income):
  • Extension of mortgage term up to 40 years
  • Deferring of payment on portion of amount with later balloon payment ("principal forbearance")
  • Forgiveness of portion of debt may be done but is not required ("principal forgiveness")

Borrower Q&A's is also set forth regarding refinancing and modification.

The federal government's "Homeowner's HOPE Hotline" is (888) 995-HOPE.