making home affordable program

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PRESIDENT OBAMA’S “MAKING HOME AFFORDABLE” PROGRAM

Making Home Affordable is part of President Obama’s comprehensive strategy to get the housing market back on track. Through this program, as many as 9 million American families, including yours, may be eligible to refinance or modify home loans to a payment that is affordable now and into the future.

STEP ONE – DETERMINE WHICH CATEGORY YOU ARE IN

Refinancing is for the many homeowners who pay their mortgages on time but have not been able to refinance to take advantage of today’s lower mortgage rates. This could be due to a decrease in the value of their home.

Fannie Mae and Freddie Mac’s “Home Affordable Refinance” includes new refinancing flexibilities for homeowners.

Key features include:

• Additional Flexibilities: Most borrowers refinancing an existing Fannie Mae loan will not be required to buy new or additional mortgage insurance if the loan at the time of the refinance is more than 80% of a home’s value. Any existing mortgage insurance may be carried forward to the new loan.
  
  In addition, Fannie Mae can refinance loans up to 125 percent of a home’s value. Even borrowers who are “underwater” – who owe more than their home is worth – may be able to refinance. This will expand the number of borrowers able to take advantage of lower interest rates that reduce monthly payments, or refinance into a more sustainable mortgage.
• Streamlined Processing: Beginning in April 2009, all 1,600 lenders and 29,000 mortgage brokers using Fannie Mae’s Desktop Underwriter platform will be able to process an application to refinance any existing Fannie May loan, allowing for greater lender origination capacity and easier refinancing for borrowers. The expanded refinance flexibility ends in June 2010.

You may be eligible for refinancing your loan if:

• You are the owner occupant of a one to four unit home,
  
• The loan on your property is owned or securitized by Fannie Mae or Freddie Mac.
  
• At the time you apply, you are current on your mortgage payments (current means that you haven’t been more than 30-days late on your mortgage payment in the last 12 months or, if you have had the loan for less than 12 months, you have never missed a payment),
  
• You believe that the amount you owe on your first mortgage is about the same or slightly less than the current value of your house,
  
• You have income sufficient to support the new mortgage payments, and
  
• The refinance improves the long term affordability or stability of your loan.
  

Modification is for those homeowners who are struggling to make their monthly mortgage payments. There are many reasons that contribute to this such as an increase in the interest rate (ARM) or a decrease in family income. The “Making Home Affordable” program provides mortgage services with financial incentives to modify existing first mortgages. This program could help as many as 3 to 4 million homeowners avoid foreclosure.

Fannie Mae and Freddie Mac, through the “Home Affordable Modification” initiative, will work with the loan servicers across the country to help distressed borrowers modify their current loan into a mortgage that is more affordable and sustainable. Loan servicers participating in the program may reduce interest rates, lengthen the payment time frame or take other steps, such as principal forbearance, to bring the monthly payments down to as low as 31 percent of the borrower’s gross (pre-tax) income. You don’t have to wait until your payments are delinquent to start a loan modification initiative. A plan can be put in place as soon as you think you may have trouble making your mortgage payment.

To ensure that borrowers currently at risk of a foreclosure have the opportunity to apply for a “Home Affordable Modification”, servicers have been directed not to proceed with a foreclosure until a borrower has been evaluated for the program.

You may be eligible for loan modification if:

• You are an owner-occupant in a one to four unit property,
  
• You have an unpaid principal balance that is equal to or less than $729,750 for one unit properties (If you live in a two to four unit property, there is a higher limit – consult your mortgage servicer.),
  
• You have a loan that was originated on or before January 1, 2009,
  
• You have a mortgage payment (including taxes, insurance, and home owners association dues) that is more than 31% of your gross (pre-tax) monthly income, and
  
• You have a mortgage payment that is not affordable, perhaps because of a significant change in income or expenses.
  

Find out if your loan is owned or scrutinized by Fannie Mae or Freddie Mac
Both Fannie Mae and Freddie Mac have established toll-free telephone numbers and web submission processes to make this data available. Borrowers will provide or enter information to determine if either agency owns or securitized the loan. This information is not a guarantee of eligibility for the refinance program, as other qualifying criteria must also be met.

• For Fannie Mae, 1-800-7FANNIE (8am to 8pm EST), or www.fanniemae.com/loanlookup

• Freddie Mac, 1-800-FREDDIE (8am to 8pm EST), or www.freddiemac.com/mymortgage

To learn more about these programs and to see if you are eligible, visit http://makinghomeaffordable.gov.

STEP 2 – CONTACT A HUD APPROVED COUNSELOR

Foreclosure prevention counseling services are provided FREE of charge by nonprofit housing counseling agencies working in partnership with the Housing and Urban Development (HUD), a federal agency. HUD and NeighborWorks America fund these housing counseling agencies. You do not have to pay a private company for these services.

To locate the non-profit housing counseling agency closest to you, please go to www.hud.gov/offices/hsg/sfh/hcc/fc/index.cfm.

WHEN KEEPING YOUR HOME JUST DOESN’T MAKE SENSE

Even after working with an approved housing counseling agency, you may determine that you simply cannot afford to continue making your mortgage payments while providing for other basic needs.

Do not walk away from the mortgage even if you cannot continue making the payments! If your home is sold at a foreclosure sale, you run the risk of losing any equity you built up in your home and tarnishing your credit report, a result that could hurt you in obtaining credit down the road. Here are some alternatives for you to consider.

• Sell your home. You stand a better chance of getting more money if you sell it through a reputable real estate agent than if it is sold in a foreclosure sale. In addition, if the proceeds from the sale of your home are less than what you need to pay off the mortgage, your lender may be willing to accept less than the amount due and forgive the rest of the mortgage debt. This is called a “short-sale” and can be negotiated directly with your lender. There may be tax consequences to a short sale so be certain to speak with a tax professional prior to entering into this type of agreement.
  
• Negotiate a deed in lieu of foreclosure. If you decide to give up your home, you may be able to negotiate a deed in lieu of foreclosure with your lender where you voluntarily release the home back to the lender.
  
  • Do not agree to a deed in lieu unless the lender agrees to something in exchange, such as releasing you from liability for any “deficiency” remaining on your mortgage.
    
  • To make sure that your lender sticks to the agreement, have your attorney (not the attorney for or recommended by the lender) review the agreement.There may be tax consequences to a deed in lieu of foreclosure so be certain to speak with a tax professional prior to entering into this type of agreement.

WHEN REFINANCING OR MODIFYING YOUR HOME LOAN IS NOT ENOUGH?

If is very common for families who are struggling with their mortgage payments to also have credit card and other debts that are out-of-control.

If that is the case, refinancing or modifying the mortgage may not resolve all of the financial problems and a successful bankruptcy filing may be a solution. Filing either a Chapter 13 or Chapter 7 bankruptcy will not prevent you from refinancing or modifying your home loan and the two actions can actually work together to provide you the financial fresh start you deserve.

Michael J. Cox, Attorney at Law, LLC can help you navigate through that decision making process. Free 30 minutes appointments are available just by calling (803)254-6041 or you can go to the resources section of this website and complete the initial meeting questionnaire.

BE PRO-ACTIVE - DOING NOTHING IS THE WORST THING YOU CAN DO

Just by taking the following pro-active steps, you can regain your financial freedom:

1. Try to get your home loan refinanced or modified before you go into foreclosure.
   
2. Evaluate your financial situation and determine if keeping your home is more than you can afford and if it is, then
   
   1. Sell your home through a reputable realtor. If you cannot sell your home for what it is worth, consider a “short-sale” but remember to negotiate with your lender for any deficiencies. There may be tax consequences to a short sale, so be certain to speak with a tax professional prior to entering into this type of agreement.
      
   2. Negotiate a deed in lieu of foreclosure with your lender but make sure that any agreements you make are in writing and that your attorney has reviewed and approved the agreement. There may be tax consequences to a deed in lieu of foreclosure, so be certain to speak with a tax professional prior to entering into this type of agreement.
      
3. Call Michael J. Cox, Attorney at Law, LLC at (803)254-6041 or complete our online initial meeting questionnaire form to schedule a free 30 minute appointment to discuss your financial situation.

FREQUENTLY ASKED QUESTIONS ABOUT REFINANCING

Q. I am current on my mortgage. Will the Making Home Affordable Refinance Program help me?

A. You may be eligible for this program if you are current on your mortgage even if your house has decreased in value. Through the Making Home Affordable Refinance Program, Fannie Mae and Freddie Mac will allow you to refinance your mortgage if it is owned or backed by either of those agencies.

Q. Okay, I am current on my mortgage, so how do I know if I am eligible?

A. You may be eligible if:

• You own and live in the one to four units home you want to refinance.
  
• Your present mortgage loan is owned or securitized by Fannie Mae or Freddie Mac.
  
• You are current on your mortgage loan payments. Current means that you have not been more than 30 days late making your payments in the last 12 months or, if your loan is less than 12 months old, you have never missed a payment.
  
• You believe that the amount you owe on your first mortgage is about the same or slightly less than the current value of your house. You can check out the estimated value of your home by going to: www.zillow.com.
  
• Your family income is sufficient to support the new mortgage payments.
  Refinancing your mortgage loan will improve the long term affordability or stability of your loan.

Q. How do I determine that by refinancing my mortgage loan, the long term affordability and stability of my loan will improve?

A. Your lender will give you a “Good Faith Estimate” that will include your new interest rate, mortgage payment and the amount you will pay over the life of the loan. You will need to compare this to your current loan terms. If you don’t see an improvement, then refinancing may not be the right choice for you. Remember, however, that refinancing from an adjustable rate (ARM) to a fixed rate loan or by eliminating higher risk loan terms such as interest only payments or balloon payments, will provide long term stability.

Q. I know that I owe more than my property is worth. Can I still qualify for the Making Home Affordable Refinance Program?

A. If your first mortgage does not exceed 125% of the current market value of the property, you may be eligible. Go to www.zillow.com to check the estimated value of your home. The actual current value of your home will be determined after you apply to refinance.

Q. Do I still qualify to refinance under the Making Home Affordable Refinance Program if I have both a first and a second mortgage?

A. Borrowers with more than one mortgage may be eligible if the amount due on the first mortgage is less than 105% of the value of the property. There are two factors that will be considered as well and those are (1) your second mortgage lender agrees to remain in second position, and (2) you are financially able to meet the new payment terms on the refinanced first mortgage.

Q. Will my mortgage payment be lower if I refinance?

A. The objective of the Making Home Affordable Refinance Program is to provide creditworthy borrowers who have shown a commitment to paying their mortgage, the opportunity to get into a mortgage with payments that are affordable today and that are sustainable for the life of the loan. If the mortgage interest rate that you are currently paying is higher than the current market rate, you should see a reduction in your mortgage payment if you refinance.

Q. Is there a set interest rate used for loans refinanced under this program?

A. No. The rate will be based on the market rate in effect at the time of the refinance and any associated points and fees quoted by the lender. Interest rates may vary across lenders and over time as market rates adjust.

Q. Are the refinanced loans structured to include prepayment penalties or balloon payments?

A. No.

Q. Can I reduce the amount I owe on my property by refinancing under this program?

A. No. Refinancing will only reduce the amount that you pay in interest over the life of the loan. Refinancing will not reduce the principal amount you owe.

Q. I owe some other debts. Can I include a little extra in my refinanced loan so I can pay off those debts?

A. No. You may, however, be eligible to finance all closing costs and obtain a small amount of cash (2% of the mortgage amount not to exceed $2000) if there is sufficient equity and your loan is owned or securitized by Fannie Mae. If your loan is owned or securitized by Freddie Mac, you transaction costs (appraisals and/or title work) can be included in the refinanced amount as long as it does not exceed $2500.

Q. I am sold! How do I apply for a Making Home Affordable Refinance?

A. This is the process that you should follow:

1. Call your mortgage servicer, lender or a HUD approved non-profit housing counseling agency. To find a HUD approved counseling agency close to you, go to http:// www.hud.gov/offices/hsg/sfh/hcc/fc/index.cfm. You can also apply for this program by contacting any major bank or mortgage broker that is approved to work with Fannie Mae. Just ask the bank or mortgage broker you contact if they are authorized to provide a Making Home Affordable Refinance.
   
2. Ask them about the Making Home Affordable Refinance application process.
   
3. Be patient. This program is in its implementation stage and it may take time before they can process all applications.
   
4. Be ready. Gather all of your information and documents before you call and be ready to talk specifically about your income, expenses, and goals.
   
5. Be assertive. Make a list of the questions you want answered and be clear on the terms discussed. Document telephone conversations and keep emails and letters so you can provide a history to whomever you are speaking with. You may not speak with the same person twice.

FREQUENTLY ASKED QUESTIONS ABOUT MODIFICATIONS

Q. What if my home loan is not owned or securitized by Fannie Mae or Freddie Mac?

A. You may still qualify because the program is designed to help borrowers who are struggling to keep their loans current or who are behind on their mortgage payments.

Q. How do I qualify for the Making Home Affordable Modification Program?

A. To apply, you must:

• Be an owner-occupant in a one to four unit property.
  
• Have an unpaid principal balance that is equal to or less than $729,750 for one unit properties. Consult your loan servicer if you own property that is two to four units.
  
• Have a loan that was originated on or before January 1, 2009.
  
• Have a mortgage payment (including taxes, insurance, and home owners association dues) that is more than 31% of your gross (pre-tax) monthly income, and
  
• Have a mortgage payment that is not affordable, perhaps because of a significant change in income or expenses.
  

Note – If you answered YES to all of these questions, you may be eligible to apply for a loan modification but only your servicer or a HUD approved non-profit housing counselor will be able to tell you if you qualify.

Q. Do I have to be behind on my mortgage loan payments to be eligible to apply?

A. No. If you are struggling to make your mortgage loan payment or you are at risk of imminent default, for example, because your mortgage payment has recently increased to a level that is not affordable, you may be eligible to apply. If your family income has been significantly reduced or you have experienced other hardships that render you unable to pay your mortgage, you may be eligible to apply for loan modification under the Making Home Affordable Modification Program.

Q. I have a second mortgage. Am I still eligible?

A. Yes, but only the first mortgage is eligible for a modification.

Q. How do I know if my servicer is participating and are all servicers required to participate?
A. Service participation is voluntary but many of the major servicers are already on board. You can get a list of participating servicers by going to www.makinghomeaffordable.gov.

Q. Who is my loan servicer?

A. Your loan servicer is the financial institution that collects your monthly mortgage payments and has responsibility for the management and accounting of your loan.

Q. Is my loan servicer the same as my lender or investor?

A. Not necessarily. Your servicer may also be your lender, which means they own your loan, however, many loans are owned by groups of investors.

Q. Will my loan servicer have the last say on the terms of a loan mod for me?

A. Only if the loan servicer owns the loan. If not, your servicer may need to get permission from the owner or investor before they can change any of the terms of your loan.

Q. What if the investor is not participating in the Making Home Affordable Modification Program?

A. If your servicer or investor is not participating in the program, you should ask your servicer or a HUD approved non-profit housing counselor about other workout options that may be available.

Q. What will my servicer do to determine if I qualify?

A. If you report a hardship, your servicer will:

• Determine if your loan meets the minimum eligibility criteria. If yes,
  
• Ask about current income, assets and expenses as well as the specific circumstances relating to the hardship to determine if you will be unable to make your current mortgage payment. (Your servicer may initially accept verbal information about your income and expenses, but eventually you will need to provide proof in the form of tax returns, pay stubs and other evidence).
  
• Determine if your monthly first mortgage loan payment is more than 31% of your GROSS or pre-tax monthly income. If yes,
  
• Add past due charges (interest, taxes, insurance and costs that your lender paid to other parties on your behalf – but not late fees, those must be waived) to the loan balance.
  
• Determine how much of an interest rate reduction will be required to get your first mortgage payment down to a point where it is no more than 31% of your gross monthly income.
  
• Apply a value test to determine if the cost of the modification (including the government’s incentive payments) is less costly for the investor than not modifying the loan (loans held by borrowers who have a lot of equity or whose incomes are very low in relation to the value of their homes probably will not pass this value test). If yes,
  
• Put you on a trial modification for three months at the new interest rate and payment level.
  If you successfully make the payments and are current at the end of the trial period, your servicer will execute a permanent modification agreement that will lower your interest rate to a fixed rate for five years, and then capped at a low rate for the remaining life of the loan.

(Note – You will be required to sign the modification agreement and other documents and attest that all the information you provided to your servicer was true and accurate. Misrepresenting any information is a violation of Federal Law and has serious consequences.)

Q. What happens after five years?

A. If the modified interest rate is below the market rate, the modified rate will be fixed for a minimum of five years. Beginning in year six, the rate may increase no more than one percentage point per year until it reaches the rate cap indicated in your modification agreement.

Q. What determines the “cap”?

A. The cap set in your modification agreement is equal to the prevailing market interest rate on the date the modification is finalized as published by Freddie Mac based on a survey of its customers. This cap means that your rate can never be higher than the market rate on the day your loan was modified. If the modified rate is at or above the prevailing market rate, as defined above, the modified rate will be fixed for the life of the loan.

Q. Are taxes and insurance factored into the modified loan payment?

A. Yes. The modification payment will include a monthly amount which the mortgage loan servicer will set aside in an escrow account to pay taxes and insurance on your property when they become due. The program requires escrowing of the taxes and insurance even if your current loan does not include an escrow.

Q. What is the lowest interest rate I might qualify for?

A. 2%, if necessary to get to a payment that you can afford based on your income. The US Treasury is providing incentives to your investor to write the interest down so you can qualify to keep your home.

Q. What if that doesn’t fix the problem?

A. If a 2% interest rate does not result in a payment that is affordable (no more than 31% of your gross monthly income), your servicer will:

• Try to extend your payment term.
  
• Try to defer repayment on a portion of the amount you owe until a later time. This is called a principal forbearance.
  
• A portion of the debt could also be forgiven. This is optional on the part of the investor. There is no requirement for principal forgiveness.

Q. If these options are exercised, it appears that I might have a balloon payment. Is that true?

A. Yes. If your servicer determines that a principal forbearance is required to get your monthly payment to an affordable level, the amount of the forbearance, say for example this was $20,000, would be subtracted from the amount used to calculate your monthly mortgage payment, but you would still owe that money. The $20,000 would be set up as a balloon payment that had no interest and was not due until you paid off your loan, refinanced or sold your home.

Q. What happens if I am unable to make the payment during the trial period?

A. You will become ineligible for a Making Home Affordable Modification. You, however, may be eligible for other foreclosure prevention options offered by your servicer.

Q. How much will a modification cost me?

A. If you qualify for a Making Home Affordable Modification, you will never be required to pay a modification fee or pay past due late fees. If there are costs associated with the modification, such as payment of back taxes, your servicer will give you the option of adding them to the amount you owe on your mortgage. Of course, you could also pay some or all of those expenses in advance. By paying these expenses in advance, you can reduce your new monthly payment and save interest costs over the life of the loan.

Be aware of any organization that attempts to charge an upfront fee for housing counseling or modification of a delinquent loan, or any organization that claims to guarantee success.

Q. What do the HUD approved non-profit housing counselors do?

A. Borrowers, especially those who are behind on their mortgage loan payments, are encouraged to contact a HUD approved housing counselor to help them navigate through the system. These services are free. You can find a HUD approved housing counselor near you by going to www.hud.gov/offices/hsg/sfh/hcc/fc/index.cfm.

Q. Do I qualify for modification under this program if I do not live in the house that secures the mortgage that I want to modify?

A. No. Only the mortgage on your primary dwelling is eligible.

Q. Are duplexes eligible for this program?

A. Yes, if you live in one of the units. Two, three, and four unit properties are eligible as long as you live in one of the units and it is your primary residence.

Q. Are all loans eligible for the Making Home Affordable Modification Program?

A. Most conventional loans including prime, sub-prime and adjustable loans, loans owned by Fannie Mae, Freddie Mac and private lenders and most loans in mortgage backed securities are eligible.

Q. Okay. How do I apply for a modification under this program?

A. Here are the steps:

• Make sure you meet the general eligibility criteria for the program.
  
• Gather all of your financial documentation your servicer will need to see if you qualify.
  
• Call your mortgage servicer and ask to be considered. You can also call a housing counselor at 1-888-995-HOPE (4673) and they can help you evaluate your income and expenses. This counseling is FREE.
  
• Be patient. If you have missed one or more mortgage payments and have not yet spoken to your servicer or a housing counselor, call them again and let them know that you are behind on your payments.

Q. What documents do I need and what information should I gather?

A. You will definitely need the following:

• Monthly income information. Pay stubs or any other documentation that proves your monthly income.
  
• Most recent tax return.
  
• List of assets.
  
• Information on any other mortgages on your home.
  
• Account balances and minimum monthly payments due on all credit cards.
  
• Account balances and monthly payments on all other debts such as student loans and car loans.
  
• A hardship letter describing why your mortgage payments are unaffordable. Be truthful and open.

Q. When does this program end?

A. December 31, 2012.

Q. What if I am going into or have been served with foreclosure papers?

A. Call your servicer or a HUD approved non-profit counselor immediately. You can reach a HUD approved non-profit counselor at 1-888-995-HOPE (4673) or go to www.hud.gov/offices/hsg/sfh/hcc/fc/index.cfm.