The Obama administration announced a program in March called the Making Home Affordable program that aims to reduce borrowers’ monthly payments to no more than 31% of their pretax income.

To qualify, homeowners must meet a very specific set of circumstances. The homeowners must live in their homes, they can already be behind in their mortgage payments or they have to prove that they stand at the threshold of default because of their financial difficulties, the balance of their first mortgage can’t be in excess of $729,750.00, and their new payments must be made for a three-month trial period in order to qualify.

The savings can be very noticeable for those who qualify. Let’s say a homeowner can’t make the monthly payments of $2,023.00 (excluding taxes & insurance) on their $320,000.00 mortgage. Making Home Affordable could cut that payment to $1,254.00, with a 2% interest rate.

Although the Making Home Affordable program only lasts for just 5 years, each year the loan principal is reduced by $1,000.00 if the homeowner stays current on the payments. When the 5 years is up, the lender will increase the interest rate 1 percentage point a year until it reaches the prevailing rate.

If a homeowner qualifies they must also deal with a lender that is both willing to help and is in the program. Lender participation is voluntary but lenders or loan servicers that handle loans owned or guaranteed by Freddie Mac or Fannie Mae will most likely participate. The names and phone numbers of lenders that have formally announced participation are listed on the Making Home Affordable website.

If you are in need of a loan modification, contact your lender and ask for the loss-mitigation or home-retention department. If they give you the run around, seek help elsewhere.

See More:
MakingHomeAffordable.gov
Loan Modification Program
FDIC Loan Modification Guide

New Refinance Rules to Aid Borrowers

The federal government has recently eased up on some of the eligibility requirements for its home loan refinancing program. In the beginning of July 2009, the U.S. Department of Housing and Urban Development extended the Home Affordable Refinance Program to borrowers who are up to 25% more in debt to their home than the property is worth as long as their mortgages are guaranteed by Fannie Mae and Freddie Mac.

The previous threshold was 105% of the homes value, or owing 5% more than the home is actually worth.

Under the Making Home Affordable Program, there are two available options to eligible borrowers: (i) they can refinance their mortgage; or (ii) they can modify their loan by lowering their interest rate, extending the duration of the loan or reduce the principal on the loan.

It is currently estimated that only 200,000 of the 4 to 5 million Americans that are having difficulty saving their homes are enrolled in the program. Furthermore it is estimated that 10 percent, or 20,000 of these program participants are refinancing.

Only borrowers who have not missed a payment by more than 30 days in the last year, and are backed by a government sponsored lender, are eligible for the program.

Fannie Mae and Freddie Mac normally do not allow borrowers who owe more than 80% of the value of their home to refinance. These two lenders constitute around 50% of the outstanding mortgages in the country, and about 20% of all the seriously delinquent loans, on which no payment has been made during the past two months.

Here are the eligibility requirements:

-          To qualify for refinancing under the Making Home Affordable Program, the borrower must have their loan secured by Fannie Mae or Freddie Mac. To find out if your loan is secured through either of these entities, contact your lender.

-          The home must have no more than four single-family units, as some multifamily properties are able to qualify.

-          All mortgage payments must be current. The borrower cannot have any late payments more than 30 days past due.

-          The outstanding primary mortgage loan principal cannot exceed more than 125% of the home’s current market value that is up from the 105% limit in February.

See more:
If You Need to Refinance A Mortgage There Are New Rules
What You Should Know About Refinance
Should You Refinance? See if You Can Hit the Trifecta

Refinancing Your Mortgage

If you are behind on your mortgage and your payments are difficult to keep up with, you’re not alone: One in five homeowners now owes more money on their home that the house is worth, according to First American Core Logic. When it gets to this point, the goal here shouldn’t be to lock in the lowest interest rate; it should be to attempt to qualify for refinancing into a mortgage you can afford. Here are a couple options providing that you have a job and meet certain qualifications.

The first option is the Making Home Affordable program. This program was announced in March by the Obama administration and is intended for homeowners who owe more money on their home than the house is worth and need a more affordable payment. One feature of refinancing with the Making Home Affordable program is an interest rate that is fixed for at least five years.

The Making Home Affordable program is no cure-all. You’ll only qualify for the program if Fannie Mae or Freddie Mac owns the current loan on your home and the balance on your first mortgage can’t exceed the value of your home by more than five percent. That five percent limit disqualifies many in troubled markets in Arizona, California, Florida, and Nevada, where home values have dropped considerably. The Making Home Affordable program ends in June 2010.

The second option is called the Hope for Homeowners program. The Hope for Homeowners program may help if you’re at risk of default or are in bankruptcy or foreclosure. Because of the high cost to both the lenders and borrowers, very few of these FHA-insured loans have had any takers.

The Obama administration has proposed fixes to the Hope for Homeowners program to make it more effective. This includes the easing of eligibility requirements for borrowers and reducing their costs.

See more:
Obama’s Loan Modification Program
Fannie Mae, Freddie Mac, What to do?
www.makinghomeaffordable.gov
www.hud.gov/hopeforhomeowners