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Making Home Affordable Plan can help with financing

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By Doug Awad

The “Making Home Affordable Plan” is made up of two parts:

The Home Affordable Refinance Plan provides access to low-cost refinancing for responsible homeowners suffering from falling home prices and The Home Affordable Modification plan will assist homeowners in danger of losing their homes to foreclosure.

The Home Affordable

Refinance Plan

While mortgage rates are now at historic lows, many homeowners with mortgages owned by Fannie Mae or Freddie Mac are unable to refinance their higher-rate mortgages because they have lost equity in their properties due to falling home prices. Under current rules, Fannie Mae and Freddie Mac cannot guarantee a mortgage that exceeds 80 percent of the home’s value. The Home Affordable Refinance plan removes this restriction, allowing certain homeowners to refinance their mortgages. This plan runs until June 1, 2010. A homeowner qualifies if:

The property is owner-occupied and the existing mortgage is current.

The existing mortgage is owned by Fannie Mae or Freddie Mac.

The new mortgage balance does not exceed 105 percent of the home’s current value.

The mortgage balance must not exceed $729,750 for single family homes.

The Home Affordable Modification Plan

The Home Affordable Modification Plan will assist responsible homeowners who are now struggling to afford their mortgage payments and who cannot sell their homes because prices have fallen significantly; in many cases making the value of the property less than what is owed on it. The intent of the program is to offer loan modifications that will bring a homeowner’s monthly payments to sustainable levels. To qualify, a homeowner must:

* Be an owner-occupant.

* Have a mortgage created on or before January 1, 2009.

* Be in financial hardship or in imminent danger of financial hardship.

* Have a current mortgage payment (including taxes and insurance) that exceeds 31% of monthly gross income.

* Have a loan amount that doesn’t exceed $729,750 for a single-family home (the loan need not be owned by Fannie Mae of Freddie Mac)

* Apply by Dec. 31, 2009.

* Homeowners with total “back-end” debt (including housing debt, car loans or leases and credit card debt) equal to or greater than 55 percent of their gross income must enter a HUD-certified credit counseling program as a condition for loan modification.

Lenders must reduce the borrower’s monthly mortgage payment to not more than 38 percent of his/her monthly gross income. The U.S. Treasury will then share the costs of reducing the payment dollar-for-dollar to a debt-to-income ratio of 31 percent. This may be accomplished by capitalizing the arrearage, dropping the interest rate to as low as 2 percent, extending the loan term to up to 40 years, and/or forbearing principal. (Principal forbearance will result in a balloon payment due on the loan’s maturity date, upon sale of the property, or upon payoff of the interest-bearing balance). The modified payments must be kept in place for 5 years, and then the interest rate can be stepped up by no more than 1 percent per year to the 30-year conforming loan rate in place at the time of the modification. No modification fees may be charged to the borrower and unpaid late fees to the borrower will be waived. The following incentives are offered to accomplish modifications:

* Mortgage servicers are offered an up-front fee of $1,000 for each delinquent loan modification meeting the guidelines. As long as the borrower stays current, the servicer will also receive a Pay for Success payment of up to $1,000 annually for 3 years.

* Mortgage servicers will be paid $500, and mortgage holders will be paid $1,500, for each at-risk loan modified before the borrower is delinquent.

* Borrowers who make timely mortgage payments will receive Pay for Performance principal balance reduction payments equivalent to $1,000/year for 5 years.

* To encourage lenders to modify more mortgages, cash payments to partially offset probable losses from home price declines will be made on each modified loan that remains active in the program.

Your tax dollars at work. If you have any questions, please contact Doug by e-mail at Doug.Awad@raymondjames.com or by telephone at 854-6866.

If you have questions, call Doug Awad at 854-6866, or e-mail Doug.Awad@raymondjeames.com. He is a resident on the 200 Corridor and his office is on 31st Road, adjacent to Paddock Mall.