Details of Home Mortgage Aid Plan
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by: marciafreeman
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This week, the President and his team unveiled the stimulus program designed to boost the housing market. He introduced the Homeowner Affordability and Stability Plan in Mesa, Arizona, one of the areas in the country with the highest home mortgage foreclosure rates. The $75 billion plan aims to curtail the increasing number of foreclosures and keep responsible homeowners on top of their home mortgage payments. The two main tenets of the plan are to offer more homeowners an opportunity to refinance with lower interest rates and give home mortgage lenders incentives to modify current loans.
President Obama has repeatedly stated that the purpose of any plan would be to help responsible homeowners stay in their homes. In that spirit, the Homeowner Affordability and Stability Plan will allow a consumer who has a loan backed by Freddie Mac and Fannie Mae to refinance to a lower interest rate. Lenders now require at least 20 percent equity to be eligible to refinance a home mortgage. The problem for many homeowners in areas of the country hardest hit by decreasing values is that they now own less equity. The housing aid plan will allow Freddie and Fannie customers to refinance, in spite of having less than the required 20 percent equity in the home. A homeowner with a mortgage loan not backed by those institutions might instead be able to modify the loan. Payments on mortgages will be reduced to about 30 percent of income for those who are qualified for such a modification. The mortgage payment would maintain those modified terms for five years, then will slowly be raised again. To qualify for a home mortgage adjustment, banks will consider the amount of debt a consumer has relative to his income. In many instances, sessions with a financial counselor will be mandatory. Banks may also give rewards to those who continue to pay their mortgage bills on time after a loan modification.
The government will give lenders monetary incentives for modified loans, as well as for those customers who keep their mortgages in good standing. Homeowners will have to prove that they have the income to support their modified loan payments. Those who appear unable to meet their loan obligations, even after a modification, will not qualify. Consumers that hold jumbo home mortgage loans will not be eligible for loan modifications. Additionally, a home must be a primary residence to be eligible for loan modification, which means investment only properties will not qualify.
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