New foreclosure prevention and mortgage relief programs: A summary

An understandable (we hope) summary of new foreclosure prevention and mortgage programs:

You can just see those bureaucratic minds grinding away as you slog through some of the details of the two new programs announced on March 4th.  Below is a brief summary of the important points.  If you think you might qualify, we suggest getting (free) counseling help.  (DO NOT go to a paid service.) See our BLOG entry with info on how to find a government- approved counseling agency near you.

The Treasury Department has set up a website with more details and an interactive assessment tool at www.financialstability.gov, but it isn’t all that great. It starts with a notice that the site is coming!

If you are in danger of being foreclosed, the new program could help you by cutting your payments, but it might not.  It is still voluntary (which is why we advocate letting bankruptcy courts in on the action); but the government has added sweeteners for the mortgage holders and servicers to entice them to do a modification rather than foreclose.

To qualify, you have to live in a single-family home; have monthly payments (including principle, interest, taxes, insurance and condo fees) that exceed 31% of your income (including wages, pensions, tips, commissions, social security etc); AND you must swear to some sort of financial hardship under penalty of perjury.  Typically this means that your income has decreased or your interest rate has increased.

If you meet these requirements, AND IF your loan servicer is willing to negotiate (they don’t have to), the government will help them to lower your monthly payments to 31% of your income for a period of five years, during which the government will also reduce your principle by $1,000 a year.  There is a three-month trial period during which you must make all of the new payments, after which the modification becomes permanent.  After five years all bets are off and the loan may revert to its original terms.

If you are current with your mortgage, but the mortgage balance is higher than the current market value of your house (but not more than 105% of that value), AND if your mortgage is held or guaranteed by Fannie Mae or Freddie Mac, you may qualify for a refinance under the second part of this new plan.

Your loan servicer can tell you if your loan is held or guaranteed by Fannie or Freddie (about half of loans like this may qualify, they estimate); or you can find out yourself by calling 1-800-7Fannie and 1-800-Freddie. Their websites respectively are www.fanniemae.com/homeaffordable and www.freddiemac.com/avoidforeclosure.

If you do qualify, you might be able to refinance your mortgage at the new, lower rates, something you would not have been able to do without help because you have no equity in your house.

There are no income limits for this program and it is NOT for people who are behind in their mortgages.  You do not have to show financial hardship.  You just rewrite your mortgage as you would have done anyway if you still had equity in your house.

Also see our main site article on how to prevent foreclosure.

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