Here is an interesting article from NY Times.
More Housing Details Are Pending, but First Some Answers
By TARA SIEGEL BERNARD
The Obama administration’s housing plan aims to help millions of homeowners who fall into two categories: either they have been struggling to pay their mortgages or they have been shut out of the refinancing market.
The initiative gives lenders incentives to modify the mortgages of the three million to four million homeowners on the brink of foreclosure or who cannot make their monthly payments. The goal is to reduce the payments to levels they can afford.
The plan also aims to help the four million to five million homeowners who have been unable to refinance their mortgages because their home values dropped, erasing much or all of their home equity. Some of them would have a fresh shot at refinancing.
While the administration offered some details about the programs, more information will be available on March 4, when the programs begin.
Below are answers to some of the questions that troubled borrowers may have.
Q. Am I eligible?
A. Your loan must be owned or guaranteed by Fannie Mae or Freddie Mac, the government-controlled companies that together account for about half of the mortgage market. The problem is that many of the most problematic loans do not fall under the Fannie-Freddie umbrella. You can call your mortgage lender after March 4 to find out if your loan qualifies.
You will need to have “sufficient income to make the new payment and an acceptable mortgage payment history,” according to documents about the initiative. Precise details will be released next month.
In the meantime, you should get your financial house in order. That means collecting the paperwork you will need to refinance, including information detailing your gross monthly income; most recent income tax returns; information about any second mortgages; payments made on credit cards if you carry a balance; and payments on other loans, like auto or student loans.
Q. What if my home is under water?
A. If you owe more on your mortgage than your property is worth, you may still be eligible. But there is a giant caveat: your new mortgage cannot exceed 105 percent of the property’s current market value. That means many homeowners in areas like Florida, Arizona and Nevada, where home prices have plunged the most, will not be eligible.
If your property is worth $200,000, you can qualify if you owe $210,000 or less. Your property will be valued after you apply to refinance.
Q. What if I have a second mortgage?
A. You are still eligible as long as the amount due on the first mortgage is less than 105 percent of the property’s value and you have the wherewithal to meet the new terms on your first mortgage. But the lender on your second mortgage needs to agree to remain in a “second position,” which means that if you declared bankruptcy, the second loan would be less likely to be repaid. To date, these lenders have not been wholly cooperative.
Q. What kind of interest rate am I likely to get?
A. All loans that are refinanced under the plan will have a 15- or 30-year term with a fixed rate, which will be based on market rates at the time of refinancing, as well as any associated points and fees charged by the lender.
Q. Am I eligible for that?
A. To qualify, your monthly mortgage payment needs to exceed 31 percent of your monthly gross income and the house you are refinancing must be your primary home. Mortgages on two-, three- and four-unit properties are also eligible, as long as you also consider one as your primary home. You do not need to be behind on your payments to qualify. If your income is no longer enough to make the payments (because your paycheck has shrunk, your expenses rose or your mortgage rate is about to reset higher), you would still qualify.
Moreover, the loan amount must not exceed current Fannie Mae or Freddie Mac loan limits, which are $417,000, but up to about $729,000 in certain high-cost areas.
Unlike the refinancing program, the loans do not have to be owned or insured by Fannie or Freddie. Only primary loans may be modified.
Q. Will the plan reduce my mortgage balance?
A. Lenders are most likely to lower your payments to a level you can afford by reducing your interest rate. But that does not preclude lenders from reducing your loan amount. All borrowers who make timely payments will be able to cut their balance by up to $1,000 a year for five years.
Q. What if I am about to lose my house to foreclosure?
A. Call the company that services your mortgage or your credit counselor. Many lenders have stopped foreclosures on houses that may qualify for the modification program. If you are already working with a counselor, ask him or her to consider your case for the new program.
Q. Is my lender required to comply?
A. No, but the government is offering lenders incentives if they do. The government expects that most major lenders will participate.