Making Homes Affordable plan seeks to provide mortgage modification

Mortgage modification is finally available to millions of homeowners in distress.

Recently, the Obama Administration unveiled a plan that would make the mortgage payments for current homeowners more affordable, allowing them to remain in their homes. The primary goal is to stem the rate of foreclosures, which have swept the nation in recent months.

Aptly termed the Making Homes Affordable plan, this program is a mortgage modification plan funded with money allocated in the Troubled Asset Recovery Program (TARP), which was passed by Congress last fall.

Nearly nine million responsible homeowners will receive assistance in the form of mortgage modification through the Making Home Affordable plan. This plan provides assistance through two distinct options: the Home Affordable Refinance program and the Home Affordable Modification program.

Home Affordable Refinance Program

Available to assist four to five million homeowners who currently have an existing mortgage that is owned by either Fannie Mae or Freddie Mac, the Home Affordable Refinance program allows mortgage refinancing to borrowers with a solid payment history so that they can take advantage of the current low mortgage rates.

Under normal circumstances, these homeowners would not be eligible for mortgage refinance because of the lost value to their homes. To be eligible for this type of mortgage loan modification, the homeowner must have a debt to income ratio (DTI) of not more that 31% on a fixed, thirty-year mortgage.

The federal government will increase this DTI ratio to 38%. There must be less than 20% equity in the house and the loan can be for no more than 105% of the current market value of the house.

Home Affordable Modification Program

The Home Affordable Modification Program is for three to four million homeowners who are considered at-risk of foreclosure on their mortgages held by banks and credit unions, effectively reducing their monthly mortgage payments. 

The guidelines under this mortgage modification provision are expected to become standard industry practice for sustainable mortgage loan modifications. Such a mortgage modification is related to foreclosure bailout loans as a whole.

Role of mortgage services regarding the mortgage modification plan

Mortgage loan servicers can modify mortgages that meet the following criteria:

• Loans originated on or before January 1, 2009
  
• First-lien loans on owner occupied properties
  
• Proof of income and owner occupancy status

The mortgage modification terms and procedures require participating servicers to make reasonable efforts to modify all eligible loans. This program also comes with incentives to servicers, lenders and responsible borrowers.

Servicers who modify loans receive $1,000 per mortgage modification. The lender shares the cost of payment reduction.

Homeowners are eligible to receive up to $1,000 of principle reduction payments yearly (up to five years) for making their monthly payments in a timely manner.

There are other programs designed by the government to assist homeowners including the Hope for Homeowners program and the Streamlined Modification Program.

However, if you are a distressed homeowner, you could start by calling your lender to find out how you can benefit from the mortgage modification strategy provided by Making Homes Affordable.