Using money from the “Troubled Asset Recovery Program” (TARP) legislation passed last year to bail out the banks, President Obama has enacted a plan through the Treasury Department to help “at-risk” homeowners by giving incentives that will enable you to refinance directly with your current lender at today’s low interest rates and help keep you in your home. The eventual goal of this “Homeowner Stabilization Plan” is designed to rewrite the terms of approximately 9 -10 million mortgages to provide assistance for “at-risk” homeowners who might otherwise lose their home without new mortgage terms. Over $100 billion dollars have been allocated to support the implementation of this plan. Homeowners with eligible mortgages held by Fannie or Freddie will be eligible for refinancing. Homeowners with private mortgages may be eligible for subsidized loan modifications. The plan has now been initiated as of March 4, 2009, but only accepts borrowers who entered into their loans prior to January 1, 2009. The last date that the plan is currently slated to accept new participants is December 31, 2012.
The Nuts and Bolts of Make homes affordable program. If your mortgage is held by Fannie or Freddie, you may be eligible to refinance if 31% of your monthly income is greater than or equal to the monthly payment on a 30 year fixed mortgage at the current market rate. The property in question must have lost market value to the point where you have less than 20% equity, and are thereby unable to refinance on the open market. While properties with some negative equity (that are slightly “underwater”) are eligible, the loan cannot be for more than 105% of the market value of the property. If your mortgage is NOT held by Fannie or Freddie, or, if it is and and you don’t meet one or more of the other criteria, you may be eligible for a five (5) year loan modification. The goal of the modification is to reduce your monthly payment to 31% of your gross (pre-tax) monthly income. This is accomplished by temporarily reducing the interest rate on the loan. If the interest rate required to reduce the monthly payment to 31% of income is less than the payment on a 30 year fixed loan at the current market rate, the interest rate on the loan is then gradually stepped back up on a yearly basis until it matches the current market rate at that time of participation.
Under the guidelines of the HAMP program your interest rate can be lowered to as low as 2% for up to 5 years, the bank may also extend the repayment term up to 40 years, and a portion of the principle balance of your loan may be placed on forbearance – A big word meaning its still hanging out there but you don’t have to pay interest on it for a certain period of time. If you sell your home – you’ll still have to pay that money back. All of these factors are designed to get your mortgage payment down to 32% of your gross household income.
Indeed, TARP provides the Treasury Department the means by which to leverage better rates from mortgage companies. Under the guidelines for the MSA put out by Treasury thus far, if a lender has received any financial assistance under TARP (most mortgage lenders), the lender is obligated to participate in the MSA and to renegotiate new terms for struggling mortgage holders. Under 2 (9)(A), TARP defines “troubled assets” as, Residential or commercial mortgages and any securities obligations or other instruments that are based on or related to such mortgages, that in each case was originated or issues on or before March 14, 2008, the purchase of which the Secretary [of Treasury] determines promotes financial market stability. TARP, 2 (9)(A.) Thus, the definition of “troubled assets” to be purchased by the Treasury explicitly includes residential or commercial mortgages … originated or issued on or before March 14, 2008.” Id. TARP delegates the implementation of the program to Treasury, providing that the Treasury will develop its own regulations in implementing what “troubled assets” to purchase. TARP. Section 101 (Purchases of Trouble Assets) provides for the Treasury to determine what troubled assets to purchase and under what guidelines:
Authority – The Secretary is authorized to establish the TARP to purchase and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary. TARP 101 (a) (1) Thus, TARP gave the Secretary of the Treasury the authority to determine what “troubled assets” to purchase and under what guidelines. It is under this framework that the MSA was developed and announced by President Obama in February, 2009, and now implemented. Goals and Guidelines: The following is a highlight of what information is now available to consumers. The MSA is aimed at “at risk” mortgages. The primary goal is to ” provide access to low-cost refinancing for responsible homeowners suffering from falling home prices.” Department of the Treasury. One of the reasons for implementation of the MSA is that mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time securing refinancing. (For example, if a borrower’s home was worth $200,000, he or she would have limited refinancing options if he or she owed more than $160,000.) Thus, millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. The MSA is designed to help people in such situations.
Learn more about Obama Mortgage Relief Plan Qualifications.
