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Making Your Home Affordable: New Options for Lowering Payments
The Obama Administration's "Making Home Affordable" program is designed to help distressed mortgage borrowers avoid foreclosure or overcome obstacles to refinancing their loans. In the Winter 2008/2009 issue of FDIC Consumer News, we provided early details about the plan. Now here's more information, including how to find out if you're eligible for assistance and how to get additional help.
Refinancing Opportunities: This part of the program is intended to help four to five million homeowners who have been unable to refinance into mortgages with a lower interest rate because their homes have decreased in value.
In general, to qualify for a mortgage refinancing under this program, homeowners must have an existing mortgage owned or guaranteed by Fannie Mae or Freddie Mac (government-sponsored enterprises that help ensure funds are available for home buyers at affordable interest rates), be current on their mortgage, and have a first mortgage that does not exceed 105 percent of the property's current market value.
The interest rate and any refinancing fees will be set by each lender. Call your mortgage lender or loan servicer (the company that collects your monthly mortgage payments) to find out if your loan is eligible. If you already know that your loan is held or guaranteed by Fannie Mae or Freddie Mac, you can contact them at 1-800-7FANNIE or 1-800-FREDDIE to see if you qualify for this program.
Loan Modifications: This part of the program is designed to help as many as three to four million homeowners at risk of losing their homes to foreclosure by reducing the monthly payments on their mortgages. To be eligible, the home must be the primary residence, the loan balance must be no more than $729,750 for a single-family home, the payment (on a first mortgage) must be more than 31 percent of the borrower's gross (pre-tax) monthly income, and the homeowner must either be having trouble meeting mortgage payments or be at serious risk of falling behind. Bankruptcy does not automatically disqualify a homeowner from participating.
Participation by lenders and loan servicers is voluntary. However, the U.S. Treasury is offering incentives to servicers to modify loans to make them affordable — first to reduce the interest rate to as low as 2 percent, and next, if needed, to extend the length of the loan to 40 years. If that isn't enough to make the loan affordable, the loan servicer may defer repayment on a portion of the loan, which can result in a sizeable "balloon payment" due at the end of the loan. Another option may be for the servicer to forgive some of the principal, but there is no requirement for servicers to make that concession.
The modified interest rate will remain in place for five years, then it will increase gradually by up to one percent per year until it reaches a cap prescribed by the program.
The Administration's loan modification plan was modeled, in large part, on a program developed by the FDIC in 2008 to help thousands of delinquent mortgage borrowers at the failed IndyMac Bank in California who needed assistance to remain in their homes.
To provide additional assistance, the administration recently announced a loan modification program to help mortgage borrowers having trouble making payments on second mortgages, such as home equity loans.
To Learn More: The Web site www.makinghomeaffordable.gov provides homeowners with detailed information about the programs. The Web site can help you determine if you may be eligible, but only the servicer of your loan can tell you if you qualify. Sam Frumkin, a Senior Policy Analyst in the FDIC's Division of Supervision and Consumer Protection, cautioned that because qualifying for a loan modification is a complex process, "even if the Web site says you are not eligible, it is probably still a good idea to contact your mortgage servicer, with or without the help of a reputable housing counselor, to find out if you qualify."
Also keep in mind that all lenders are not participating in the Administration's refinancing and loan modification programs, but lenders generally are willing to assist borrowers in trouble. "You might qualify for the Administration's program or for a different loan modification program that can also lower your monthly payment, but you need to call your loan servicer or lender and ask about your eligibility," said Suzy Gardner, an FDIC bank examination specialist.
Finally, see Foreclosure Rescue and Loan Modification Scammers for guidance on avoiding mortgage rescue frauds.
Last Updated 5/26/2009