Making Home Affordable Programs Help Homeowners

By Gerri Detweiler
The Union Credit Doctor

You may have heard about the government program to help homeowners save their homes, and wonder whether you qualify. Making Home Affordable offers two programs.

1. One program helps homeowners refinance into more affordable fixed-rate loans, while
2. the other is aimed at getting lenders to modify loans with monthly payments that are a reasonable percentage of the homeowner’s income.

Making Home Affordable Refinance Program (HARP)

While mortgage interest rates have remained remarkably low, some homeowners have been unable to take advantage of these low rates because the value of their home has dropped. Many lenders today will not refinance a loan unless the homeowner has at least 20% equity in their home. Even borrowers who have been paying on time for years may find that they cannot refinance due to lower home values.

The Making Home Affordable refinancing program is designed to help homeowners who have higher rate loans, or risky adjustable rate loans, by allowing them to refinance into 15-year or 30-year fixed-rate loans.

You may be eligible to refinance your home under this program if you meet all of the following qualifications:

• You live in the home you want to refinance. Investment properties or second homes are not eligible. If you live in one unit of a two to four unit property, however, you may qualify.
   
• Your mortgage is owned or controlled by Fannie Mae or Freddie Mac. This does not mean you make your payment to either of these companies. To learn if your loan qualifies, call the loan company to which you make your mortgage payment or look up your loan online.
   
• You are current on your mortgage payments. If you have been more than 30-days late on a mortgage payment in the last 12 months, you will not be eligible.
   
• The amount you owe on your first mortgage is about the same, or slightly less, than the current value of your home. If the balance on your mortgage is larger than 125% of your home’s value, you will not be eligible. Second mortgages cannot be refinanced under this program, but if you have a first and a second mortgage, you may be able to refinance your first mortgage under this program as long as the balance equals 125% of your home’s value or less.
   
• You can document a stable income large enough to support the new mortgage payments, along with your other debts.

If you qualify, your loan will be at a market interest rate. There will be no prepayment penalty or balloon payment.

To apply for the program, contact your current mortgage lender or servicer. (That’s the company to which you currently make your payments.)

It’s a good idea to have some information handy for your lender when you call, including:

• your most recent pay stub and information about other income you receive,
• your tax return from 2009 if you have completed it (otherwise have your 2008 tax return handy),
• details about any second mortgage or home equity line of credit (including the balance you owe), and
• a list of all your other debts and their balances.

Home Affordable Modification Program (HAMP)

Not everyone will qualify to refinance their home, for a variety of reasons:

• refinancing may not lower monthly payments enough to make them affordable,
• they owe much more than their home is worth,
• their debt levels are too high, or
• they’ve already fallen behind on payments.

For these homeowners, loan modification may be the solution.
 
To apply for a Home Affordable Modification, you must meet these qualifications:

• You live in the home with the loan you want to modify. This program does not cover investment properties, unless you live in a one part of a two to four unit property.
• Your unpaid principal balance is equal to or less than $729,750 for a single family home. The limit is higher for two to four unit properties.
• Your loan was taken out before January 1, 2009,
• Your monthly payment (including taxes, insurance, and home owners association dues) is more than 31% of your gross (pre-tax) monthly income, and
• Your mortgage payment is no longer affordable, perhaps because of a significant change in income or expenses.

You do not have to have missed payments to be eligible for the modification program, but if you have fallen behind, you won’t be disqualified, either.

If you do qualify, your lender will reduce your interest rate to as low as 2% in order to get your monthly payment down to a point where it is about 31% of your gross monthly income. If you can stick with the new, lower payments for three months (the trial period), your rate will be fixed for five years. After five years, your rate can rise no more than one percentage point per year, until it reaches the cap set out in your modification agreement. That cap will be the market rate published by Freddie Mac when your modification was finalized. Essentially that means your rate can never be higher than market rate when your loan is modified.

If reducing your rate does not bring your payment down to about 31% of your monthly income, then the lender may offer to stretch out your loan to forty years. If that doesn’t provide enough relief, the lender may defer part of your principal balance or interest until a future date, or even forgive part of your balance. Deferring part of your balance could leave you with a balloon payment that will be due when you sell your home or refinance it.

If you pay your loan on time under HAMP, you can also receive a principal reduction of up to $5000 over five years, helping you build equity in your home.

In 2009, only first mortgages were eligible for modification under HAMP. However, the Treasury Department announced plans to expand HAMP in 2010 to allow second mortgages to be modified as well.  Under the 2nd Lien Modification Program (2MP), if a borrower's servicer is a program participant, the second lien will automatically be eligible for a modification when the first lien is modified under HAMP. The 2MP program is expected to be fully implemented in the first quarter of 2010.

If a modification isn’t an option for you, the servicer of your loan may receive financial incentives to accept alternatives to foreclosure, such as a short sale (where your home is sold for less than the balance you owe, and the lender forgives the difference) or a deed in lieu of foreclosure (where you essentially give your home back to the lender).

Lenders receive financial incentives for participating in this program, and they must participate if they want to receive funding under Treasury’s Financial Stability Program. A list of participating lenders is published at www.FinancialStability.gov.

Additional FAQs about MHA is available here. (PDF)

Help is available! Union members can all Union Plus Credit Counseling at 1-877-833-1745 or the Union Plus Save My Home Hotline at 1-866-490-5361.


Updated 2/25/2010. For current information, visit MakingHomeAffordable.gov