Important NEW Information About the Homeowner Affordability and Stability Plan (Part 2)

For those of you who read my post of a few days ago (How the new Homeowner Affordability and Stability Plan Can Help You, February 24)), you should know that over the last several days there has been a great deal of information released on the details of this plan, of which I feel the need to share. I would encourage you to read the prior post in conjunction with this one.

As the author of a book written to help people through the foreclosure mess (www.MortgageWalkawayOptions.com), I was particularly optimistic about the new plan, thinking that so many people would have a new option available to them, and would thus get help. Since the plan goes into effect next week, on March 4, there have been many questions, information released on a daily basis, and much argument on late night political and news shows over the plan. Today I spent a lot of time pouring over some of the information, which I will summarize.

1. How is Eligibility Determined Under the Program? It is important to know that ALL of the details will be announced on March 4, however from the information available it is easy enough to figure out some of the key points of the plan, but here are the main requirements:

a) You must make enough income to be able to afford new payments

b) The program is limited to loans held or securitized by Fannie Mae or Freddie Mac. To find out if your loan is held by either of these entities you can call your lender after March 4.

c) Your home must be your primary residence (no second/vacation/rental properties). Multiple unit properties WILL qualify as long as you live in one of the units as your primary residence.

d) Your loan cannot exceed current Fannie Mae or Freddie Mac loan limits (this could eliminate many people).

e) Your lender is NOT REQUIRED to modify your loan‚the program is voluntary. As I mentioned in my other blog there are financial incentives to lenders to offer the modifications.

2. Will Principal Balances on the New Loans Be Reduced? NO. While the wording in the plan did not indicate this, it has become clear that the new loan that is created will lower your payments (because you will have a new, lower interest rate), BUT there will be no reduction in your principal balance. As I mentioned in my other post, you will have the opportunity to reduce that principal balance by $5,000 at the end of 5 years if you are current on all your payments at that time, but other than that the balance will be unaffected. Caveat: If you are a borrower paying interest only payments and you refinance to a lower, fixed rate you may not see your payments go down, BUT you will likely save a great deal over the life of the loan.

3. What if You Have Both a First and Second Mortgage? The ball is in the lender’s court on this one. As long as the amount due on your first mortgage is less than 105% of the value of the property, the lender of the second loan can choose whether or not you will be able to refinance; this will basically depend on whether the second lender can remain in second position and on whether you can afford the new payment terms on the first mortgage.

4. Interest Rates on the New Loans: These will be determined by the market rates and will typically be 15 or 30 year term mortgages with fixed rates. Good news: there will be no prepayment penalties or balloon payments.

5. Do you Need to be Behind on Mortgage Payments to Qualify? No. As long as you have sufficient income to make payments on the new loan and are at risk of imminent default you can qualify under the program (assuming you meet the other criteria).

I hope this is a start to clarifying the program for everyone. It certainly has opened my eyes. The best piece of advice I can offer you is to GET EDUCATED and understand other possible options that may be available to you. My book provides this information in a very basic format if you need more information. You can download it at www.MortgageWalkawayOptions.com.

I thought maybe this book might become obsolete in light of the new program, but now more than ever it is important to understand all options. To find out if you qualify under the new legislation please call your lender after March 4 and tell them you would like to be considered under the new Homeowner Affordability and Stability plan. Best of luck to you.