Housing Crisis Rescue Plan

As I am sure many of you have heard, the Obama administration has recently anounced the details of their housing rescue program. After reading various news stories and watching various new programs on the issue, I thought I would offer a quick and concise take on the available options. There are two main compenents to this plan....the refinance program and the loan modification program. It is estimated that approximately 9,000,000 homeowners will be able to benefit from the $78 billion dollars President Obama has set aside to "fund" this program.

The refinance program is designed to benefit those who are not yet behind on their house payments. However, in order to use this program your loan must be backed by Freedie Mac or Fannie Mae. To find out if your loan is backed by one of these organizations, you should contact your lender. For loans backed by these programs, homeowners are normally able to refinance only if they owe less than 80% of the value of their home. With the dramatic drop in home prices, people who easily owed less than 80% of their home's value a year ago now might owe 125% of their home's value now. Thus, these people are denied from refinancing their homes at a time when interest rates are historically low. Under the Home Affordable Refinance program, these homeowners will now qualify for a new 30 year fixed rate mortgage. Refinance program to the rescue!

The mortgage modification program is designed to help people who are either in danger of falling behind on their mortgage payments and/or are in danger of losing their homes via foreclosure. The program should benefit those impacted by job layoffs and other serious financial hardships. If you qualify for this program, your lender will reduce your monthly payments to no more than 38% of your income. The lender will then further reduce the payment to 31% of your income. They are able to do this by splitting the costs associated with the reduction with the federal government. These "modified" payments will continue for up to five years. As I understand it, the loan repayment term may be extended to up to 40 years under some circumstances. Lenders will be able to reduce the balance owed on the mortgage in addition to reducing the interest and stretching the payment terms to reach the 31% threshold.

While, I think these programs will help many hardworking homeowners, I am afraid it will not do enough to help all who need it. Naturally, there will be high demand for these programs, so please do not hesitate to get in touch with your mortgage company quickly. The phone lines are going to be busy and you may not get to speak with a person for several days but be persistent and patient.