Mortgage Law, Mortgage Modification, and Foreclosure: Obama's Making Home Affordable Program Part I
Buenos Dias Readers! I'd like to take the next few updates to explain and the Government's Making Home Affordable Program (MHA). This is the program many of you have heard about in the news, that was designed to save homeowners from foreclosure. Over the next few updates we will explain the program, how to qualify, and what to do if you don't qualify.
Back on February 18th of this year, the Obama Administration announced the MHA program. It was expected that it could offer assistance to as many as 7 to 9 million homeowners by reducing monthly mortgage payments and avoiding foreclosure. On March 4th of this year details began getting published about the program. On April 28th, more guidelines were announced and the program was strengthened. By now most lenders have implemented the program and roughly 75% of all loans in the country are covered by the program (although that doesn't mean 75% of them are eligible).
The main goal of this program is to assist lenders and homeowners in modifying or refinancing homeowners mortgage payments to levels that are considered affordable. For this program that means that homeowners are expected to be able to afford a payment that is between 31% and 38% of their Gross Income. For instance if your salary is $120,000 and you make $10,000 a month, you can expect your mortgage to be modified to a payment (including taxes, insurance, HOA) of $3,100 a month.
There is a step process to get this payment down. First the interest rate is dropped to a floor of 2%. If that doesn't lower the payment enough, the loan term is extended up to 40 years. If that still doesn't get the payment down, they do what is called a principle balance forbearance. This means that they will take the difference between the unpaid loan balance and the fair market market value of the home and tack some or all of that amount on the end of the loan, at zero percent interest, due in a balloon payment when the house is refinanced, sold, or the loan becomes due.
The Lender is responsible for any loss for doing the modification up to the 38%. The government will split any loss that results from the above process in lowering the payment from 38% to 31%. This is the basics of the program. Next time we will discuss qualifying for the program.
