Mortgage Modification and Refinance Plans to Avoid Foreclosure

There was a time when vacant, board-ups were few and far between; now we see several empty homes on every street in many neighborhoods. It doesnt matter if were in lower-class, urban areas or in the middle to upper-class neighborhoods; there are many empty houses that are difficult to sell.

The condition of our economy and decreasing values of homes has been devastating for the millions of responsible people who are struggling to make their mortgage payments. Unemployment, cutbacks, reduced work hours and in extreme cases, pay cuts, are expected cause as many as 6 million families to face foreclosure in the next few years. In addition, millions more will struggle to make ends meet.

Though the crisis seems to be temporary, something still needs to be done to assist distressed homeowners. Sure, we will find a balance as prices continue to decline and the demand for real estate goes up, but until then, we need to decrease the number of foreclosures which add to the problem.

Vacant homes, littered with debris, are an eyesore to the neighborhood and a danger to the community. Children and teens find these empty houses attractive as they go in to explore or play. They can be injured or, heaven forbid, fall victim to predators who may be waiting inside or force them inside.

New Programs Provide Hope for Homeowners

The Obama Administration launched several new programs in March, 2009, to offer assistance to as many as 9 million homeowners who continue their effort to make their mortgage payments. The plan is to reduce the destructive impact of the housing crisis on families and communities. The Making Home Affordable program was designed to support a recovery in the housing market and ensure that responsible homeowners will be able to continue making their mortgage payments.

The Making Home Affordable Program requires the cooperation of the government, loan servicers, investors and borrowers who will share the responsibility of helping people avoid foreclosure and stay in their homes.

The Home Affordable Refinance Program

This program is expected to help about 5 million responsible Americans refinance their homes by reducing their interest rate; therefore, reducing their monthly mortgage payment. Under this new program, homeowners cannot owe more than 105% of their homes current market value. Though many people paid at least 20 percent down when they purchased their homes, and some people are in the habit of making extra principal payments on their loans, many still have trouble refinancing because values have declined sharply. The Obama Administration has launched this program to help responsible homeowners, whose loans are guaranteed or owned by Freddie Mac or Fannie Mae, refinance their mortgage to make their home more affordable.

A Home Affordable Modification Program

It is anticipated that this $75 Billion program will reduce foreclosures and help responsible families keep their homes by modifying the terms of their mortgage as the Treasury Department cooperates with federal agencies on a comprehensive, multi-part strategy.

This program is intended to help millions of homeowners who are struggling to keep up with their mortgage payments due to the current recession; yet, cannot sell their homes because market values have declined so that they owe more on their mortgage than the amount they can expect to sell their home for. Many responsible homeowners have fallen victim to the hidden fees and increased mortgage payments as a result of the subprime mortgage that seemed to be a great deal at the time it was executed. This program was designed to provide security for families and stability for neighborhoods hardest hit by foreclosures.

One of the greatest things about this program is that it brings all parties together to share the cost of making the program work. The government offers financial incentives to lenders who take a reduced interest rate while responsible homeowners continue making their payments. The result will be a reduced number of foreclosures and vacant properties which force the values to continue declining.

How the Programs Work

The Treasury will work with lenders ad investors to make homeowners mortgage payments more manageable.

Provided the lender agrees to a loan modification, the borrowers payment will be reduced to a level of no more than 38 percent of their income.

The Treasury shares the costs of reducing the payment further, from 38% of the borrowers income to 31% of the borrowers income.

The modified payment amount will be effective for 5 years, and then the interest rate will gradually increase by 1% per year until it reaches the capped rate that is put in place at the time of modification.

In order to achieve this lower mortgage payment, lenders are agreeing to reduce interest rates to as low as 2%. If this does not result in the 31% income-to-debt ratio, then the term of the mortgage will be extended to a period of up to 40 years. The last resort is to reduce the principal balance until the monthly payment reaches the target amount of 31% of the borrowers income.

Incentives offered to Lenders who Cooperate

Servicers will receive $1,000 for each eligible modification which meets the guidelines established under this new Home Affordable Modification Plan. In addition, lenders/servicers will receive $1,000 per year, for three years, as long as the borrower is successful in keeping with the program.

Similar incentives are provided to lenders who modify FHA, VA or Agricultural Department loans or to those who refinance loans according to the Hope for Homeowners Program or similar FHA programs.

Loan modifications are more likely to be successful if they are made before a borrower becomes delinquent in their payments; therefore, additional incentives are offered to mortgage holders and servicers for modifications made while a borrower is at risk of default, but still current on their mortgage.

Hopefully these programs will be successful in creating stability for the community and security for homeowners who take action now. We certainly dont need any more vacant homes in our neighborhoods.

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