Foreclosure Prevention Program: Am I Eligible?
President Barack Obama unveiled a $75 million mortgage bailout plan on Wednesday, February 18th. The plan targets 9 million homeowners who need help. Are you one of them?
The plan has two major objectives. The first is to help homeowners refinance at the historically low mortgage rates. The second is to provide lenders with incentives to make your mortgage much more affordable. The official plans will not be released until March 4th, but there are a few things that we already know.
For those seeking to refinance at a lower rate, it has been very difficult due to falling home prices. If you owe more than your home’s market value it is nearly impossible to refinance in the current economic environment. You must have at least 20% equity in your home to even be considered for a refi. The new plan will help by allowing those with up to 5% debt in their home value to refinance. The only catch is that the loan must be owned or backed by Fannie Mae or Freddie Mac. The estimate is that this will help 5 million homeowners to refinance.
Those who own a home that is underwater by more than 5% have no chance of refinancing. Also, jumbo mortgages do not qualify, only conforming mortgages. Before this year, “jumbo” mortgages were considered anything above $417,000. Most importantly, all borrowers have to prove they can financially keep up with their loan payments.
Many homeowners that are in dire situations will be greatly assisted by the new plan. Anyone with high mortgage debt compared to income can gain assistance through a mortgage modification. If their debt is in other areas such as car loans or credit card debt, they may still qualify for a mortgage modification but will be required to go to credit counseling in a HUD-sponsored program. These invididuals must have debt exceeding 55% of their income.
If you qualify for the mortgage modification, your lender will lower your mortgage payment to 31% of your income. Your mortgage payment would stay at this level for five years and gradually make its way back to its original amount. To make things even better, borrowers will be offered incentives up to $1000 for making payments on time. President Obama feels that this could assist up to 4 million homeowners.
Rates will not be lowered by more than 2% and any loan over $417,000 is ineligible.
Those who bought homes as investments are not eligible for this program. The kicker is the following statement, “the program will not reward homebuyers who were irresponsible in their borrowing.” Wouldn’t ANYONE who qualifies for this plan be irresponsible?
Why does the United States government continue to promote bad financial behavior. Read my personal take at: