George S. May Business Blog

Making Home Affordable

The Obama administration launched a $75 billion loan modification program called the “Making Home Affordable” initiative today. The Making Home Affordable plan, set to run through 2012, was created in hopes to help stabilize the housing market by helping as many as 9 million homeowners refinance or modify their mortgages.

The Making Home Affordable housing plan, in summary, has two main parts: one aimed at prudent homeowners who would like to refinance into a lower rate, and another aimed at struggling homeowners seeking a way to lower burdensome monthly mortgage payments.
 Let us review:

The first program within the Making Home Affordable housing plan is called “Home Affordable Refinance”. This section looks to help homeowners whose homes have lost value as housing prices have plummeted by permitting them to refinance their current mortgage even if there is little or no equity left in their homes. Borrowers with “conforming” loans backed by government-run mortgage giants Fannie Mae and Freddie Mac would be able to refinance even if they no longer have 20 percent equity in their homes. Many homeowners
may not even need a new appraisal to qualify for a refinanced mortgage.

The second portion of the Making Home Affordable housing plan is for home owners struggling to make their monthly mortgages. For those in such a situation, the government will provide incentives for lenders to lower their mortgage payments, if they are “qualified”, down to 31 percent of their monthly gross income.
The idea behind the Making Home Affordable housing plan is not to prevent every foreclosure, rather to hold back the foreclosures the government deems “unnecessary”. In other words, if modest changes for prudent borrowers can be made to keep more people in their homes and stem the decline of home values in their communities, then let them be done.

There are certain details and stipulations, within the Making Home Affordable plan, which must be understood by homeowners potentially looking to cash in on the deal. Below are some of the more pertinent facts:

DETAILS, STIPULATIONS, AND EXCLUSIONS FROM MAKING HOME AFFORDABLE

 Borrowers must provide their most recent tax return and two pay stubs, as well as an “affidavit of financial hardship” to qualify.

 Borrowers in bankruptcy are not automatically eliminated from consideration for a modification.

 Borrowers in active litigation regarding the mortgage loan can qualify for a modification without waiving their legal rights.

 Borrowers are only allowed to have their loans modified once, and the program only applies for loans made on Jan. 1, 2009 or earlier.

 Incentives are provided to extinguish second liens on loans modified under the program.

 Homeowners are eligible for up to $1,000 of principal reduction payments each year for up to five years.

 Separately, up to 5 million borrowers who have mortgages held by government controlled mortgage finance giants Fannie Mae and Freddie Mac should be eligible to refinance through June 2010.

 Mortgages for single-family properties that are worth more than $729,750 are excluded.

The home may not be vacant or condemned.

The home must be a primary residence (verified with tax return, credit report, and other documentation such as a utility bill). The home may not be investor-owned.

Eligibility is restricted to loans originated on or before Jan. 1, 2009.

Interest rates can be lowered to as low as 2 percent and then if necessary, the term of the loan can be extended to a maximum of 40 years.

NOTE: The money for the Making Home Affordable plan is set to come from the second portion of the $700 billion given in the financial bailout. This provides somewhat of a relief to myself, as I was nervous that the rest of the bailout money would go right back into the pockets of big bank execs. Whether the Making Home Affordable plan will really provide relief to struggling homeowners, cut down on foreclosures and give our housing market a very necessary boost, I can not say. But, I would be willing to bet that it will have more of an impact then simply sending lenders a huge check and saying: fix it.

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