About Loan Modification: Obama Foreclosure Rescue Solution

There has been a lot of news coming out of Washington lately. Thats why I am going to attempt to briefly explain the highlights of President Obamas plan to reduce foreclosures.It is estimated (by the government) that this plan will help up to 9 million homeowners. According to the Mortgage Bankers Association, there are about 51 million first mortgages in the United States which means about 18% of the total might qualify. On March 4, 2009 we finally were given the details everyone has been waiting to hear. Please keep in mind that this is just a summary and that there are additional details. You can learn more about the plan by going to the US Government website: financialstability.gov.
The serious matter of foreclosure has caused enough stress without the annoying number of acronyms being applied to the subject. Even real estate professionals and mortgage specialists are overwhelmed with these government acronyms, including TARP, TALF, H4H, GSE, FNMA, FLHMC, PITI, FHA, VA, USDA, just to name a few! Unfortunately, I must make use of them throughout this article as they are widely used within the industry.
There are essentially two parts to the program, which, in time, will be known as HAR (Home Affordable Refinance) and the HAM (Home Affordable Modification). The purpose of the HAR program is to help eligible homeowners refinance their mortgage. The HAM deals with mortgage modifications.
First the HAR (Home Affordable Refinance):
The current mortgage must be owned or guaranteed by either Fannie Mae (FNMA) or Freddie Mac (FLHMC). If you are not sure if your mortgage meets this first requirement, you can call (800) 7FANNIE or (800)7FREDDIE between 8am ” 8pm EST. The property MUST be your primary residence. Second Homes and Investment Properties do not qualify. The borrower(s) have sufficient income to qualify. The mortgage must be up to date with no 30 day delinquencies in the last 12 months. The first mortgage cannot exceed 105% of the current market value. Example: If the property is worth $100,000, the maximum that can be owed is $105,000. If there are additional mortgages (Second Mortgage, Home Equity Line of Credit, or other liens), the other lien holders must be willing to subordinate their liens in writing to the new first mortgage. Subordinate simply means that the first mortgage will retain its superior lien position. It is OK if the total owed exceeds 105% of current value, as long as the first mortgage refinance does not exceed the 105% rule. The program officially started 3/4/2009.
A Summary of the HAM Program:
Investor/Lender participation is optional and voluntary; your mortgage servicer must be willing to participate in a modification program. The purpose of this program is to avoid foreclosure whenever possible; each case is analyzed and evaluated to determine if the borrower has sufficient income to afford a modified mortgage payment. The current PITI (Principle, Interest, Taxes and Insurance) must exceed 31% of the borrower(s) gross monthly income. Thats right, another acronym! Borrowers can be behind on their mortgage payments as each individual case is analyzed and evaluated. The plan is intended to reduce the current PITI payment for all mortgages to an amount of 31% or less than the borrower(s) monthly gross income. This includes all liens and lien holders must be willing to subordinate their position to the new modified mortgage. The modified mortgage must be for your primary residence, second homes and investment properties do not qualify. The mortgage must have been executed before January 1, 2009 and the amount owed cannot be more than $729,750. Im sure there is a reason why this is the maximum; however, I have not found any information as to how the government came to this amount. The reduced payment is a result of either a lower interest rate, a longer mortgage term, or, as a last resort, a reduced principle balance. Remember, lender/servicer cooperation is both required and voluntary. There is a 90 day trial period for the modified mortgage where the borrower must honor all the terms, and then the modification is extended for a period of no less than 5 years. Starting in year 6, the interest rate can be increased by no more than 1% per year, until the rate reaches the Freddie Mac Primary Mortgage Survey Rate on the date the modification is executed.
This article briefly explains the highlights of these new programs; more detailed information can be found at financialstability.gov.
Lets all hope that this new initiative is more successful than the Hope for Homeowners Program (H4H) that started October 1, 2008. The following article was published recently by Time Magazine:
Grade: F The Plan: Enacted on Oct. 1, Hope for Homeowners was to be the main foreclosure rescue plan from Congress, which allocated $300 billion for the effort. Supporters in Congress, like Massachusetts Representative Barney Frank, said the program would allow hundreds of thousands of borrowers, perhaps millions, to refinance into lower-cost loans by cutting the amount they owed, which for many at-risk-of-default homeowners was more than their house was worth.
The Result: So how many people have Hope for Homeowners saved from foreclosure? Zero. There have been 326 applications in the three months since the program started, but none of those people ” let alone the nearly 6 million homeowners who, by some estimates, may face foreclosure in the next few years ” have received a new mortgage or a modification for the one they have. What’s more, none of the major mortgage lenders, such as Bank of America, Citigroup and Wells Fargo, has signed on to the loan-principal-reduction program ” which gives Hope for Homeowners little chance of being successful anytime soon. “Foreclosure is the problem we have to spend a lot more effort trying to solve,” says the Economic Policy Institute’s Robert Scott. “We need to put a floor under housing prices, and stopping foreclosures is the way you do that.”
Please keep in mind that this is my understanding of the guidelines and that all information should be independently verified. Finally,…please remember…since this is a government program, all rules and guidelines are subject to change. Stay tuned…….

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This article was written by David Smith, founder of U-Move-On, a company who helps distressed homeowners in finding the best solution to their foreclosure problem. David provides encouragement and support as he helps customers deal with the foreclosure process and life after foreclosure. His unique service helps borrowers decide if they should walk away or fight foreclosure with mortgage modification.