I’ve been reading through the details of the new Homeowner Affordability and Stability Plan, which is letting lenders modify mortgages as of March 4th. Most of the information is collected here, where you can find a fact sheet, a two-page summary of modification guidelines, and the 17-page full list of guidelines.
Eligible borrowers can either refinance into a new, more affordable mortgage, or obtain a modification of their existing loan. Your existing mortgage must have been originated on or before January 1, 2009. I’ve tried to briefly summarize the rules below.
How do I qualify for a refinance?
The Home Affordable Refinance program will be available to 4 to 5 million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac. Normally, these borrowers would be unable to refinance because their homes have lost value, pushing their current loan-to-value ratios above 80%. Under the Home Affordable Refinance program, many of them will now be eligible to refinance their loan to take advantage of today’s lower mortgage rates or to refinance an adjustable-rate mortgage into a more stable mortgage, such as a 30-year fixed rate loan.
How do I qualify for a loan modification?
Borrowers who are struggling to stay current on their mortgage payments may be eligible (even if they are not currently behind on payments!) if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.
In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits.
How will my existing loan change?
The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%), then if necessary extending the term or amortization of the loan up to a maximum of 40 years, and then if necessary forbearing principal. Principal forgiveness or a Hope for Homeowners refinancing are acceptable alternatives.
I think I’m eligible! How do I start the process?
Gather up your income documentation (paystub, your most recent income tax return, all mortgage documents, and all information on all debts like car, student, or credit card loans. Then contact your lender or HUD-approved counselor and ask to be considered under the Homeowner Affordability and Stability Plan.
It would seem that a lot more people might be interested in the refinancing aspect of this plan. I don’t qualify for a loan mod, but am certainly above 80% loan-to-value. However, I doubt my rate can get much better. The main obstacle is to find out if you indeed have a Fannie or Freddie loan. I wonder if the closings costs will be subsidized – they mention that appraisals would be waived in some cases.