Details of Obama's mortgage plan released - Will you benefit?
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Making Home Affordable Today the Obama administration officially released the final details of the mortgage plan that was announced a few weeks ago. Here is a quick summary on what is in the plan and how homeowners can find out if they are eligible for a new loan.
As previously stated, there are two portions to the plan. One portion allows non-delinquent homeowners who have underwater mortgages to refinance to a lower rate, and the second portion allows delinquent homeowners to get a loan modification. Here are the general guidelines.
Making Home Affordable Refinance Guidelines
- The home being refinanced must be your primary residence. This includes 1-4 unit homes, condominiums, and manufactured homes.
- The loan must be secured by Fannie Mae or Freddie Mac. You can find out if your loan is owned by these institutions by calling 1-800-7FANNIE, or 1-800-FREDDIE. You can also find out online at www.fanniemae.com/homeaffordable or www.fanniemae.com/homeaffordable
- You must be current on your mortgage payments. This means that you do not have late payments in the last 12 months.
- All loans that are refinanced will be refinanced into 15 or 30 year fixed rate loans. The interest rate would be based on the market rate on the day of closing. The loans also would not have any prepayment penalties or be a balloon note. Borrower will be responsible for fees associated with the refinance.
- The amount you owe on your first mortgage cannot be more than 105% of the value of your home.
- You also need a stable income to qualify for a new mortgage.
Making Home Affordable Modification Guidelines
- The mortgage in question must be on your primary residence. This includes 1-4 unit homes, condominiums, and manufactured homes.
- You must demonstrate significant hardship such a loss of an income. If you have enough liquid assets to pay your mortgage then you do not qualify.
- The mortgage to be modified must have been originated on or before January 1st, 2009.
- The unpaid principal balance must be equal or less than the following:
- 1 Unit: $729,750
- 2 Units: $934,200
- 3 Units: $1,129,250
- 4 Units: $1,403,400
- Each mortgage can only be modified under the program once.
- If you qualify for the program you can receive a Pay-for-Performance Success Payment that pays for the principal balance on the loan as long as you are current on the payments. You can receive $1,000 per year for up to five years.
- Foreclosures will be suspended while borrowers are being considered for a modification.
- The program targets a front end debt to income ratio of 31%. This means that the loan should be modified so that the borrower's principal,interest,taxes,insurance, and HOA is 31% or less of his or her gross income. The government will allow services to reduce the ratio to 38% and then kick in a cash subsidy to reduce the amount to 31%.
- If the borrower has a back end debt ratio of more than 55% then they are required to speak to a HUD-approved counselor. The back end debt ratio is the total amount of debts the borrower has to pay each month. This includes credit cards, car payments, student loans, and any other obligations.
- The modification will last 5 years. The floor for interest rates is 2% and the cap is the market rate on the day of the modification. If the loan is modified through temporarily lowering interest rates then it would go back up to the market rate after five years.
- No modification fees will be paid by the borrower.
- Current late fees on the delinquent balances will be waived.
- Servicers will be compensated $1,000 for each eligible modification.
- Servicers will also receive a $1,000 per year Pay for Success fee for up to three years. This is payable 12 months from the time the borrower starts the program and makes timely payments.
- Lenders or investors will be paid a $1,500 one time incentive for each successful modification.
The details seem to indicate that the focus is really to help those who cannot currently afford their homes stay in their homes. One thing that I find a bit ironic in these details is that the delinquent borrowers who qualify for the modifications will be able to get $1,000 per year for paying on time while those responsible borrowers who have always paid ontime do not even get a break on the refinancing fees. Anyway, it is estimated that about 9 million homeowners can enroll in this program. If you do qualify for either program you can contact your loan servicer starting today. The official page for this program is at http://www.financialstability.gov/makinghomeaffordable/.Â
Tagged: Personal Finance, Consumer Affairs, Home, Real Estate and Housing, mortgage, obama, real estate
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Isn't it the job of government to make sure that private contracts are honored? Instead it looks like the government now has the power to change contracts, such as a mortgage. Troubling.
And I'm there with you Xin, why is it that those who really screwed up get the most help? And aren't we just kicking the problem down the road by offering people another 'teaser' rate of 2% for 5 years? Does anyone want to take bets on what will happen when this deal runs out?
I only rent, but this sets a very strange president.
What also troubles me is the prospect that when it comes time for me to buy, I'm going to be made to make up for the loss of income that these lenders are going through thanks to this program. The government can't just wave a magic interest rate wand and lower rates to 2% and expect people with good credit to not be affected when they go in for a similar loan.
This is going to make lenders much less competitive, not to mention put some out of business. It's also going to keep some people who could have entered the housing market from doing so, now that banks will be making up the difference on people like me. Hoohoo.
Good times are here to stay.
The lending market is always going to be competitive. Since some people were unqualified lenders have tighten guidelines creating an environment with less potential borrowers.
It will potentially put lenders out of business, but not as many if these loans default. It is hard to speculate what is really going to happen. Just be good with your credit and you will be fine.
It actually looks much better then what I expected. The guidelines are pretty strict at least.
Question though.. I don't see where the borrower gets 1k for making their payments.. I see the servicer getting that.
And to the comment about lenders being competitive... most can't be now anyway, since the only secondary market that really exist is Fannie, Freddie and FHA, your options are pretty limited.
I was cracking up over this plan now that the details are coming out (all you can do is laugh). The ONLY people NOT helped by this plan are the ones who were responsible.
– I put 20% down when I bought my house
– My mortgage is less than 31% of my income
– I’m not living off credit cards
All these factors have now put me in the bucket of people who will be paying for those who don’t meet those criteria.
Oh yeah, and we're paying the same loan officers who fudged income data and pushed buyers into teaser rate mortgages to fix the mess. Incredible!
So much for the American Dream…
I agree with your comment, it helps nobody that has done things right.
I just tried to modify my loan and within 12 days I was denied. I have fallen on some tough times with pay cuts in the auto industry, loss of child support because of job losses on the other end, doctors bills, a new roof and other factors that have put my monthly output higher than my income right now, however I can't refinance my house because I don't have enough debt. I believe they expect that I drain my 401k to pay for my house.
This plan is a joke for those that have done all the right things.
Jennifer
Responsible = The best rates/programs available, so whats your gripe?
The feds bought billions of MBS to keep the rates down to a 40 year low, so we, the responsible can refi into the cheapest fixed rates...
Dont goto your loan officer that 'fudged' your stuff again, and do some homework before you lock...By the way, if you know he 'fudged' it, then you knew and let him do it anyway..Poor you.
Before you jump on the 'entitlement' band wagon, you should truly understand how this benefits you....Bottom Line- LOW RATES/ CHEAP MONEY....
Why do irresponsible, bad payers get a $1000 incentive, while people who struggled to make a mortgage payment every month get nothing. Once again, we're rewarding bad behavior. This is like sending those kids who miss a bunch of school to a vacation resort, while the good kids stay behind and work their butts off.
Hijo Del Sol,
The $1000 for borrowers is in this document:
http://www.treas.gov/press/releases/reports/modification_program_guideli...
It's on page one:
Borrower Pay-for-Performance Success Payments:
Borrowers are eligible to receive a Pay-for-Performance Success Payment that goes straight towards reducing the principal balance on the mortgage loan as long as the borrower is current on his or her monthly payments. Borrowers can receive up to $1,000 of Pay-for-Performance Success Payments each year for up to five years.
Hi Paul,
I think Obama said before that he wants to raise taxes on more wealthy families in the interest of fairness. I forget the direct quote, but that has been his campaign for a while and he is implementing it. I think the modification plan is just another extension of robbing from the hard working/well to do to help those who cannot help themselves in the interest of "fairness".
will get much help.
The maximum amount refinancable is 105% of the homes value...
What happens to all the people who are in homes with mortgages that are 20-30-40-50-60% more than the homes value....are we forgetting the collapse of the housing bubble here??? Houses aren't worth anywhere near what they were a year ago.
Are they un-financable or is the portion above the 105% cap going to be wiped out????
The way I see it only people with a HUGE equity stake will eligable...and if you have that much equity you shouldn't need to be refinanced anyway.
And EXCUSE ME...but since when does an Investor who bought a 2-3-or 4 unit building and lives in one of the units get the priviledge of keeping the units he rents out and the loan modified????? He should lose all but he one he lives in IMO.
I agree with you Xin Lu. It seems like delinquent borrowers who qualify for the loan modifications will be benefiting more than those responsible borrowers who have always paid on time. It just doesn't make sense, but to just come to the conclusion that the Government and Lenders are covering up for their mistakes. I think that Obama's Administration needs to give some sort of incentive or benefits to those Homeowners who are current with their mortgage payments. Otherwise we are going to have more foreclosures, due to the fact that homeowners will no longer care about making their payments since their house is so upside down.
Why is it that "delinquent borrower" equates to irresponsibility? Like all stereotypes, this is an unfair characterization and oversimplification of the issue and people involved. I have been surprised and saddened by the stereotypes that have been perpetuated as a result of Obama's mortgage plan being released.
Why is it so easy to make assumptions and jump to hasty conclusions about the individuals and families that will be helped and receive relief as a result of the stimulus package? Surveys and statistics have consistently reflected the reality that most people are only a paycheck or two away from being homeless. Yes, in some cases, this is a result of fiscal irresponsibility, poor life choices and/or investment in maintaining material-based lifestyles. There are many more examples and cases of hardworking American people who have done the right things, been responsible and lived within their means, but are looking at losing their homes (or, have already lost them) due to layoffs/job eliminations, unexpected illness or life tragedies that have adversely impacted their ability to pay their bills, feed their families and make their mortgage payments.
For those people who have been no less responsible than those who have posted responses on this blog and elsewhere, Obama's plan will allow them to get back on their feet and continue to contribute to this country's economic and fiscal health. Obama's plan clearly stipulates that in order for delinquent borrowers to qualify for loan modifications or workout plans, they MUST be able to prove that they can start making their mortgage payments again. These people and their families should not be maligned or stereotyped - those that have worked hard, paid their bills on time and made double mortgage payments when possible, should not be penalized if their position of 20 years was eliminated, or they were unable to work for a period of time due to chronic illness or health conditions.
Bad things do happen to good people. Sometimes many bad things happen during a short period of time to good people - not all of these people purchased homes that were twice what they could afford. If there's a way for the significant population of people who have been responsible homeowners, but experienced unexpected adversity, to save their homes and their lives, should those solutions not be pursued? If you ask me, that doesn't make any sense.
FrugalZen,
2-4 unit buildings can qualify for owner occupied financing as long as the owner lives in one unit. That's how it always has been. Anything more than 4 units is a commercial property. I don't see a problem with helping responsible smalltime landlords refinance because renters need housing and a problem on the landlord's end could affect multiple families. However, I think that people should own up to their bad investment choice if they are unable to pay for their property. After all we are not getting a bailout for our stock market losses.
Oh, no my family wouldn't receive any benefit. After all we bought a house in our price range with a mortgage we could easily afford. Why should our good behavior receive any recognition?
have you looked into if you would qualify for this with your lender?
i will be looking into this soon. just to see if we can refi at a better interest rate. could save us hundreds a month.
sorry, the comment above was referring to the 11th commenter
Yes this plan does seem unfair for those who have actually been paying but still struggling. The fact of the matter is alot of these people got in over their heads, both the home owner and lender contributed to this. However, without the plan millions of more homes would go into foreclosure? What would be better, this bailout or letting all those homes go into foreclosure driving values down further? I rent as well right now but looking to buy my first place while prices and rates are low :)
Guest, I think it is not a bad thing to let values go down further. Here in San Mateo County the median home price is still nearly $500,000, but the median household income is a bit over $80,000. If you put 20% down on 500k your monthly mortgage + tax + insurance would still be around $3000 at the current low rates. It is unreasonable to pay nearly 50 to 80% of your income on shelter. If you are a renter now then it might be beneficial to you to let home values fall inline with your income. And if home values fall enough that it is cheaper than renting, then it is even better for you.
I can imagine me desperately trying to apply first aid after a car accident and having my kids argue "No fair!" and "She got more than me!"
If you haven't noticed yet, the credit crisis is affecting all of us. The administration is trying to stem the bleeding. The banks don't WANT to foreclose on all these houses that are worth less than the loan money they were hoping to get back. The government is doing the BANKS a favor by trying to get more people to stay in their loans. To those who feel that the banks are losing money on this deal and will take it out on other customers, please remember that the banks are already losing money because they made a lot of foolish loans. This plan is trying to help them lose less, and even paying them to help themselves.
And Xin, I think it's very fair to return taxes on the wealthy back to the levels they were under the Clinton Administration. It was unfair for the Bush Admin to hand out tax breaks disproportionately to the wealthy. I especially welcome the change in capital gains tax. Because people in upper income brackets tend to get a large percentage of their income from capital gains, their tax rate is much lower than that of much poorer people. How is that fair? How is taxing middle and lower-income people more than rich people encouraging hard work?
I blog at www.shopliftingwithpermission.com.
Most of those in trouble are going to be a lot more than 5% underwater.
If your household has lost one income, it isn't going to matter that you can pay 2% for 5 years (or even 50 years) if your household relied on that income to service the mortgage.
I see people on the news reduced to nothing more than disability income thinking somehow they will be able to pay the mortgage on their 4 bedroom house.
Regardless of how hard they worked in the past, that simply is not going to happen.
Carrie, there is a difference in tax rates and how much money is actually paid. The "wealthy" already pay a disproportionate amount of taxes in this country in terms of dollar amount. So it is not totally truthful to say that they pay less than the middle class. There will be a lot of people who will get money back while paying no taxes under the Obama administration. Is that fair to the middle class who pay their taxes? Anyway, that's a totally different issue, but I think it is in line with what the Obama administration thinks is fair. Basically, those who are able to meet their financial obligations should contribute more to those who are less fortunate and or irresponsible.
I must say that I agree with helping those who are less fortunate to an extent, but to add so many spending programs that add to the nation's deficit to do it doesn't seem very wise. Also, I think a lot of people are just pissed off because this help for the delinquent is basically being shoved down their throats. If this were a proposition that was voted on by the general population I am pretty sure it would not pass.
The car analogy doesn't correlate at all to the bailout. It is missing the main bone of contention which is: why did the car driver get in the accident in the first place? People are upset because, to extend Carrie's analogy, the driver of the vehicle was driving irresponsibly.
A better analogy would be to simply replace "mortgage bailout" with "luxury car" bailout. You have to ask yourself: "Would I tolerate a bailout for people who took out loans for a $75,000 luxury car last year?"
Home ownership is not guaranteed by the Constitution any more than car ownership. Foreclosure isn't the end of the world -- there is no shame in renting.
http://lenpenzo.com/blog/id518-im-just-askin-why-bother-being-fiscally-r...
Hey! All I need to do is drop my income a bit to squeeze under the silly cutoff point and since I am current I can get my mortage redone at a sweet reduced rate.
Then I can simply bump up my income again.
I will just have to do a temp. John Galt!
Thanks suckers!
whatever happened to empathy in this country? Why is always Me Me Me Me? I feel for people who are losing their homes, and I would disagree that the majority were irresponsible, and if this can help people stay in their homes then I'm willing to pay higher taxes to make it happen. Houses that have families living in them are better than empty ones that have been foreclosed on.
People can't seem to be able to look beyond the tip of their nose any more. It's sad to see just how self-serving we have become.
"wah wah wah, where's my share?" This is about rewarding bad behavior. Let me paint a picture using Carrie's example of kids complaining about fairness.
Sally and Sean are two teenagers at high school. Sally doesn't do her homework, choosing to go out every night, and her grades are failing. She blows her allowance on clothes every week, and runs up a huge cell phone bill she can't afford to pay. Sean works hard on his homework every night, he saves his money, he keeps his cell phone bill in check and is a good kid.
When Sally runs crying to her mom and dad that she's in a mess, mom and dad say "well, lets help you out." They pay off her cell phone bill, they talk to her principal and get her D grades changed to A grades, and they pay her $100 every week to do her homework. Sean, he gets nothing because he didn't get in trouble.
Two questions. How does this make Sean feel? And what example does this set?
Since I've been a good boy, didn't buy more house than I could afford, provided a substantial downpayment, didn't overpay, and have no desire to game the system to get government benefits I can hardly wait to have my taxes raised and my tax dollars help my anonymous neighbours anywhere across the fruited plain. Heck, forget the mortgage, I say let them eat wagyu steak! Throw a Stevie Wonder or Earth, Wind and Fire concert for them! Sorry charities, I have a greater calling now. Viva Rick Santelli and Jim Cramer!
I have a great idea... make it that any new buyer can buy up this soon to be foreclosed home at this new deal. I would buy a home THIS month if that was the deal. Right now I rent because there is nothing driving prices higher. Lets worry less about keeping the irresponsible in their homes and instead try to replace them with the responsible.
Several commenters expressed the ideas of empathy and helping those in need, but the sad fact is that a lot of renters have lost their jobs as well, and they are not being helped by this at all. Instead, they have to pay higher taxes, and higher housing costs. There are over 100 million renters in America, and I'm sure a good amount of them need help, too. Would you hand over your money to help these people for rent?
I think we ARE financing that car. Think of how many people you know who re-fied their way to fame and fortune via the inflated equity in their homes to buy that luxury SUV, RV, boat, the list goes on. These are things that these people couldn't afford even at the generous 6-year lending terms but - HEY - they had all that imaginary equity in their house and could take 30 years to pay off a new car. BS!
We were responsible (read stupid) enough to put down 20% on our home whose mortgage payments equal 9.7% of our combined income. We were stupid enough to think ahead to the "what if" one of us lost our jobs. Wanted to make sure we wouldn't lose ours and our children's home if one of us became unemployed or ill. Wanted to be responsible to our family. Now I'm being punished and forced to pay for those who spent like they won the lottery.
Oh, and for those who think us "uncharitable"?
We donate more to the charities OF OUR CHOICE every year than we could EVER write off our taxes.
Xin wrote:
Several commenters expressed the ideas of empathy and helping those in need, but the sad fact is that a lot of renters have lost their jobs as well, and they are not being helped by this at all.
Many renters will be helped because they will not be evicted when the owner goes into foreclosure.
I think this is a great plan. Yes, in some sense it does reward some people who made poor choices. But it should help stabilize the market and stop the wave of foreclosures, which hurts all of us (really it does!). And it does not provide incentives for people to just stop making their mortgage payment, as many had feared.
J., the renters will be evicted if they can't pay their rent because they lost their jobs. I mean this plan doesn't help these renters.
listen man everyone needs help sometimes in life and its our duty and responsibility to help them out
OK, sure. But that's not really an argument against the mortgage plan.
One big difference between a lease and a mortgage is that the former is a short-term contract. You are liable, at most, for one year's worth of rent -- and often much less, if you can find a new tenant for your place or work out a "penalty for early vacancy" with your landlord. No such luck with a mortgage, which is typically a 30-year contract. In the current market, it can be impossible to find a buyer, so you're pretty much trapped in a contract whose terms you can't meet.
All those foreclosures have a disastrous ripple effect through the whole economy. That's the reason for intervening to help -- not empathy for the individual homeowner (although empathy is fine), but public interest.
(BTW, several posters above talk about the illegality of meddling in private contracts. Actually, there are provisions in contract law for altering contracts that are contrary to the public good.)
Job loss for a renter may be a personal catastrophe, but its larger impact is much more limited.
i am a responsible home-buyer - i bought within my limits (not what the bank said i could afford). i just lost my job - my wife's small business tanked (i live in MI) - we NOW can't afford it. we've cut back on everything we could think of (yeah - we still have internet). we drive VERY used cars. i am current on ALL my bills. i have paid many different taxes - personal/business. now it's time to get some back....
if the gov't gonna give handouts - i am gonna be in line for it... when/if jobs come back here - i will be first in line to get AWAY from this deal. i will get a REAL mortgage ASAP.
and yes - i am against giving the banks bailouts - just as i am against the automotive bailouts (my job was automotive related). but again - if i am going to have to pay into this kind of thing, as i have for 20-some years, i figure i am due some...
I CAN'T BELIEVE SOME OF THE COMMENTS POSTED HERE AND THE LACK OF COMPASSION WE HAVE FOR EACH OTHER. DID YOU EVER THINK ABOUT THE ONE THAT WILL BENEFIT GREATLY FROM THIS PLAN? I HAD GREAT CREDIT, BOUGHT A HOUSE I COULD AFFORD BUT LIFE HAPPENS. IN 2005, MY HOUSE WAS DAMAGED BY HURRICANE KATRINA. IN 2007, I WAS FIRED FOR POOR WORK PERFORMANCE DUE TO THE FACT IN 2008, I WAS FACED WITH A BRAIN TUMOR. NOT TO MENTION IN 2009, ITS FILLED WITH ALL KIND OF GREAT THINGS LIKE RADIATION, ENDLESS DOCTOR APPOINTMENTS AND STILL NOT HAVING THE ABILITY TO WORK FULL-TIME ANYMORE BECAUSE I HAVE MEMORY LOSS, ETC.....
WILL THIS HELP ME? YES,IT WILL. WILL IT HELP OTHERS OUT THERE JUST LIKE ME? I PRAY IT DOES!
SHAME ON YOU!
paul michael = republican
Dear me, there are some stupid comments on this thread. The last one is my favorite, though. Republican? Unbloodylikely, dumbass.
Paul is an independent thinker, and I think he is pretty liberal for the most part so it is unlikely he is a Republican. Though as a sidenote, there is really no shame in being a Republican or Democrat so I'm not sure if Guest was trying to insult Paul.
To the contrary, I think that the comment was meant as an insult. And I've always found Paul to be unabashedly liberal, although I really shouldn't speak for him on that. It's just that he occasionally raises a question and offers two sides to a story and is immediately labeled a conservative right off the bat by everyone around (this certainly isn't the first time I've seen it on a post).
I think he gets stereotyped because he is a white male. :P
And bald! Because he shaves his head, not because he is going bald. Paul could grow long curly locks down to his feet, but chooses not to. :D
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Why do some of you keep asking What about the responsible home owners. Do you think it is iresponsible to work for a company for 20 years and get layed off, leaving you unable to pay your bills?
The 80th anniversary of the Big Crash is approaching. The same behaviors (leveraged investing and the selling of a bill of goods) that led us down THAT slippery slope then, are alive and well today. Myself included, when are we gonna learn? I'm reminded of an agrarian society that managed to keep their families fed during times of feast or famine. Bumper crops were blessed, then stockpiled, because they new a famine was coming. Have I done that? Have you? I think maybe I'm one of a dying breed. Do I practice what I preach? Nope. Some days, the best I can do is to acknowledge that the lesson even exists. When am I gonna learn? This whole thing is about something much bigger than the haves and have-nots. It's about personal responsibility. I know that ticks people off. It ticks me off. When I point a finger, there are three more pointing back at me.
It's really sad to hear all these stories from so many blogs with people close to losing their homes due to our economy.
Everyone seems to be angry for those losing their home being bailed out. Don't be mad with those who lost their jobs or some financial hardship truly happened in their life.
My sister purchased a do-it-yourself loan modification kit online and she is having a great experience. Just thought I'd share and pass it along so everyone can save money during these rough economic times. There's just too many scams out there with these loan modification companies. For any of you who may want to modify your loan like my sister here's the website:
www.unlawfulmortgageloans.com
Spread the word to any loved ones who my be losing their home because they have no income or have income but are struggling due to a financial or personal hardship.
Hope these rough times are over soon.
I was accepted in the the trail of Obama plan. After I completed the program and made all the payments, GMAC denied my application to modify the loan. Then they called to threatened foreclosure if I don't pay up. Worst yet, they threatened to send maintenance workers to change my locks of my home. I just gave up and moved out.
Question: I'm looking into a mortgage refi. My current Chase mortgage is 6.125%. My bank (Wings Financial Credit Union) tells me I can get a 30 yr fixed for 4.25% through the Obama plan. Only snag is that the closing costs are around $11,000 ($7,300 of which go to Fannie May). Does this sound strange to anyone?
so if you are not delinquent but your loan is not owned by fannie or freddie, even if your house value is underwater and you have only a few years of equity, you cannot get help still?
sounds like obama's plans still dont reach those whom deserve it most:
responsible borrowers who are underwater because of the damned cds scandal and finanncially threatened because of the economic collapse it has caused.
we can't wait, indeed, but we are going to have to do without for the foreseeable future... thanks obama and timmmy geithner...
this is just another scam to get money from the american public...all i can say is that anyone who does this will have short term gain and long term loss...It would cost me over 100,000 more over the life of my loan to save a measly $200.00 a month...