The federal government plans to spend $75 billion to pull millions of homeowners back from the brink of foreclosure.
The Making Home Affordable plan has two parts aimed directly at consumers:
- Refinancing help for up to 5 million homeowners who are current but struggling with their loans.
- Modifications for as many as 4 million homeowners who've fallen behind on payments or are on the brink of doing so.
The Mortgage Bankers Association said Thursday that a record 11.2% of loans on one- to four-unit residences were at least one payment past due or in the foreclosure process in 2008.
Who's left out? Investors and speculators. Those with jumbo mortgages. Those who can't document their incomes. Those who owe so much more than their houses are worth that a lender would do better by foreclosing.
The refinancing planIf you've got a loan that's well above current market rates, an interest-only loan or one that's about to reset at a much higher rate, the Making Home Affordable refinance plan may get you into a fixed, market-rate loan. It won't lower the principal (and may not even lower the payments if you've just been paying interest, for example), but it will eliminate the risk that your payment will suddenly skyrocket. This program ends in June 2010.
Borrowers may have their loans modified only once, and the program applies only to loans made before Jan. 1, 2009. Loans on single-family properties worth more than $729,750 are excluded. Borrowers are responsible for paying lender fees, points and other closing costs.
To find out if you're eligible for the refinancing program, start by answering these four questions:
- Is the mortgage for your primary residence? You've got to live all or most of the year in the home for which you're getting a refinance or modification.
- Are you current on your loan? That means you haven't been more than 30 days late making a payment in the last 12 months.
- Is your mortgage owned or guaranteed by Freddie Mac or Fannie Mae? Here's how to find out:
- Locate your loan number. You'll find it on the mortgage statement or payment coupon book.
- Call your loan servicer, the bank or company that collects your mortgage payments.
- Phone Fannie Mae (1-800-7FANNIE, between 8 a.m. and 8 p.m. ET) or use the Fannie Mae online questionnaire to learn if Fannie holds your loan.
- Or call Freddie Mac (1-800-FREDDIE, between 8 a.m. and 8 p.m. ET) or use the Freddie Mac online questionnaire.
- Is the amount you owe on the mortgage roughly the same as your home's value? Specifically, you won't qualify if you owe less than 80% of your home's currently appraised value or more than 105%, including refinancing costs. This percentage is your "loan-to-value ratio." Find it by dividing your loan amount by the home's value. For example: Your home's worth $200,000 and you owe $210,000. Divide $210,000 by $200,000 to get a loan-to-value ratio of 105%.
You can also use the government's site, Making Home Affordable, to learn more and assess your eligibility.
Borrowers who are seriously "underwater" -- those who owe more than 105% of the home's worth -- won't qualify for refinancing. In that case, see if you qualify for a government-sponsored mortgage modification. If you haven't had a formal appraisal recently, you can't know the value of your home for certain until you apply for the refinancing and the bank values the property. But you can get a rough estimate by asking a real-estate agent for an opinion. It won't be a number you can "take to the bank," though.
If your answer to any of these questions was "no," read Page 2 to find out if you qualify for a mortgage modification.
If you answered "yes" to all four questions, the next step is to demonstrate that you can afford the payments of your refinanced loan.
You'll need to pull together these papers to prove your income and expenses:
- Pay stubs. You'll need to show the gross (before tax) monthly income of everybody whose name will be on the loan. You can do this with each borrower's two most recent pay stubs. Or, if you don't receive payroll checks, you'll be asked to prove your income from other sources.
- Income taxes. You'll need to show a copy of your latest income tax return.
- Other mortgages or lines of credit. For any other mortgages or loans attached to the home, produce the monthly statement or other documentation with the loan number, contact information for the loan servicer and the names on the loan. If your home has more than one mortgage (or HELOC or credit line), you'll need that paperwork, too.
- Credit cards. You'll be asked to produce statements with the account balance and minimum monthly payments due for each of your credit cards.
- Other loans. You also need to provide the latest statements for any other loans or revolving credit. That includes student loans, vehicle loans, department store credit accounts and bank or finance company loans.
And your mortgage payment history must be able to pass scrutiny by the lender.
Finally, call your mortgage holder and get ready to wait. Lenders are just ramping up to accept applications, and they're sure to get a lot of calls. Government planners caution, "Lenders and servicers are just getting the detailed program requirements and it may take time before they are ready to accept applications."