The Homeowner Affordability and Stability Plan is designed to offer assistance to as many as 9 million homeowners making a “good-faith effort” to stay current on their mortgage payments. See Below How the plan will help Americans avoid foreclosure.
Access to refinancing
Overview
Mortgages are at historically low rates, but millions of families can’t shed their original home loans and refinance to take advantage. That’s because home values have dropped significantly, an
d current rules prevent most homeowners from refinancing if they owe more than 80 percent of the value of their homes.Getting a new loan at better rate – and perhaps getting out from under an adjustable rate mortgage that might have ballooned to a much higher percentage – could save homeowners thousands of dollars annually. Those savings translate to a monthly payment that could make the difference between
Who’s Eligible
Homeowners who sought loans through or guaranteed by Fannie Mac or Freddie
Mac – two lending institutions that recently got a huge infusion of federal funds to keep them a float – will be able to refinance under this plan.How it works
The new, refinan
ced loan can’t be more than 105 percent of the value of the existing home. For example, if your property is worth $200,000, you may quality as long as you owe $210,000 or less.Homeowners with second mortgages are also eligible, but with certain restrictions. The 105 percent rule remains in effect. The lender of the second mortgage, however, needs to agree to keep the loan in the “second position” when it comes to monthly payments. And homeowners still need to prove they can meet the payment terms of the new first mortgage.
Full details of the plan will be released in the first week of March.
Example
The Obama administration gave this example of how the plan would impact a homeowner paying back a 30-year fixed rate mortgage of $207,000, with an interest rate of 6.5 percent, on a
house worth $260,000 at the time of the purchase:The drop in the home’s value makes the homeowner ineligible to refinance under current low interest rates, because most lenders generally require the borrower to have 20 percent home equity.
Under this refinancing plan, the rules are relaxed and a homeowner could refinance to a rate near 5.16 percent, reducing annual mortgage payments by more than $2,300.
Homeowner Stability Initiative
Overview
The Homeowner Stability Initiative is intended to help up to 4 million homeowners who are struggling to pay their mortgage but cannot sell their homes because their property values have dropped significantly.
It will temporarily modify mortgage terms, making monthly payments more af
fordable so people can stay in their homes. It also provides monetary incentives to lenders and mortgage servicers who cooperate with the plan and help homeowners avoid default.
Who’s Eligible?
The White House says anyone who is “Underwater” – when the combined mortgage balance is higher than the current market value of the home – may be eligible for a loan modification, as is anyone with high co
mbined mortgage debt compared with income. The plan also includes borrowers who show other indications of being a default risk.
The assistance will go only to people who live in the home they are struggling to pay for. No speculators or house – flippers will be considered. Also, mortgages will not be eligible for help if they are larger than the Freddie Mac/Fannie Mae conforming limits.
How it works
The government will work with financial institutions to reduce eligible homeowner monthly payment.
First, the lender aggress to bring down the mortgage rate so that the homeowner’s monthly mortgage payment is no more than 38 percent of the household’s income. After that, the government will match the lender dollar for dollar as interest payments are reduced to the point where the debt-to-income ration becomes 31 percent.
These new terms will stay in place for five years. After that, the mortgage rate can gradually revert to its size at the time of the modification.
Incentives
Both mortgage servicers and mortgage holders will be rewarded if loan modifications are made before a borrower misses a payment -- $500 for mortgage holders. And the borrower, too, can be rewarded monthly
– up to $1000 for each modification and rewarded monthly – up to $1000 a year for three years – as long as the borrower continues to make payments.
The Treasury will also create a special insurance fund – of up to $10 billion – to encourage more lenders to take part in the plan. These insurance payments, linked to declines in the home price index, would compensate lenders if home price declines are higher than expected.
Example
Let’s say that in 2006, a family took out a 30-year mortgage of $220,000 on a house worth $230,000 at the time (they put $10,000 down). Their interest rate was 7.5 percent.
Today, $214,016 remains on their mortgage but the home value has dropped 18 percent to $189,000. The family is now “underwater” – their loan is worth more than their mortgage so they can’t sell the house. And, to add to their woes, household income has decreased after a parent was moved form fulltime work. Their monthly income is $3,650, and their monthly mortgage payment is $1,358 ( a debt-to-income ration of 42 percent).
Under the Homeowner Stability Initiative, the bank and the government will work together to get that ration to 31 percent. That means dropping the monthly payment from $1,538 to $1,132 (which requires a mortgage rate drop to 4.42 percent). This saves the family $406 a month, or $4,780 a year.
Overview
The Homeowner Stability Initiative is intended to help up to 4 million homeowners who are struggling to pay their mortgage but cannot sell their homes because their property values have dropped significantly.
It will temporarily modify mortgage terms, making monthly payments more af
fordable so people can stay in their homes. It also provides monetary incentives to lenders and mortgage servicers who cooperate with the plan and help homeowners avoid default.Who’s Eligible?
The White House says anyone who is “Underwater” – when the combined mortgage balance is higher than the current market value of the home – may be eligible for a loan modification, as is anyone with high co
mbined mortgage debt compared with income. The plan also includes borrowers who show other indications of being a default risk.The assistance will go only to people who live in the home they are struggling to pay for. No speculators or house – flippers will be considered. Also, mortgages will not be eligible for help if they are larger than the Freddie Mac/Fannie Mae conforming limits.
How it works
The government will work with financial institutions to reduce eligible homeowner monthly payment.
First, the lender aggress to bring down the mortgage rate so that the homeowner’s monthly mortgage payment is no more than 38 percent of the household’s income. After that, the government will match the lender dollar for dollar as interest payments are reduced to the point where the debt-to-income ration becomes 31 percent.
These new terms will stay in place for five years. After that, the mortgage rate can gradually revert to its size at the time of the modification.
Incentives
Both mortgage servicers and mortgage holders will be rewarded if loan modifications are made before a borrower misses a payment -- $500 for mortgage holders. And the borrower, too, can be rewarded monthly
– up to $1000 for each modification and rewarded monthly – up to $1000 a year for three years – as long as the borrower continues to make payments.The Treasury will also create a special insurance fund – of up to $10 billion – to encourage more lenders to take part in the plan. These insurance payments, linked to declines in the home price index, would compensate lenders if home price declines are higher than expected.
Example
Let’s say that in 2006, a family took out a 30-year mortgage of $220,000 on a house worth $230,000 at the time (they put $10,000 down). Their interest rate was 7.5 percent.
Today, $214,016 remains on their mortgage but the home value has dropped 18 percent to $189,000. The family is now “underwater” – their loan is worth more than their mortgage so they can’t sell the house. And, to add to their woes, household income has decreased after a parent was moved form fulltime work. Their monthly income is $3,650, and their monthly mortgage payment is $1,358 ( a debt-to-income ration of 42 percent).
Under the Homeowner Stability Initiative, the bank and the government will work together to get that ration to 31 percent. That means dropping the monthly payment from $1,538 to $1,132 (which requires a mortgage rate drop to 4.42 percent). This saves the family $406 a month, or $4,780 a year.
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