The Homeowner Affordability and Stability Plan and you
On February 10th, the Treasury Secretary, Timothy Geithner, explained how the financial stability plan will be critical in supporting some type of effective economic recovery by potentially curtailing up to $4M in additional foreclosures regardless of what mortgage companies owns or services the loans. But for so many of us well-intended tax paying families and individuals we want to know exactly how it can help us.
This plan is designed to help people who are current on their mortgage but are in danger of defaulting on their loan in the near future due to a high combined mortgage debt compared to income or who is “underwater” (with a combined mortgage balance higher than the current market value of his house), in other words, they owe more than the current value of their house. By government analysis, as many as 6 million families are expected to face foreclosure in the next several years, with millions more struggling to stay current on their payments.
As we know the exact guidelines are going to be rolled out in the coming days. Since there is plenty incentive for both the mortgage provider ($1000 per loan modification/restructure and an additional $1000 per year up to three years, assuming the borrower stays current on payments) and the at-risk homeowners there is a lot of curiosity as to who exactly is eligible. A few things are clear;
In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final eligibility will be determined by your mortgage lender based on your financial situation and detailed guidelines that will be available on March 4, 2009.” ~ U.S. Department of Treasury, HASP | Consumer Q & A
The property must be your primary residence (duplexes are applicable), mortgage delinquency is not a requirement (you may be current on your mortgage and still be at-risk by the general guidelines), your loans amount must conform with Fannie/Freddie conforming limits (between $417k and $625,500, depending on area), a high mortgage debt ratio [mortgage payment over 31% of monthly income], or a high overall debt ratio [monthly debt load over 55% of monthly income].
Exactly what kind of incentive is there for Homeowners? By design this plan provides incentive payments as a borrower makes timely payments on the modified loan. The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.
Even though the details and guidelines of the plan are going to be revealed in a few days, you may not need to do a thing. The mortgage companies and loan providers may contact you. They have been given plenty of financial incentive. Some consumers may be aware of this since some loan providers have declared a temporary moratorium on foreclosure proceedings.
Why have they stopped on foreclosure proceedings, you ask? Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. Servicers will also receive “pay for success” fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.
Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include an incentive payment of $1,500 to mortgage holders and $500 for servicers for modifications made while a borrower at risk of imminent default is still current.” ~ U.S. Department of Treasury, HASP | Fact Sheet
So if you happen to get a call or a notice in the mail saying that you may be eligible for a loan modification or a mortgage reduction and the notice is coming from your loan provider you should do three things, a.) understand that this may be the real deal and save that notice until you have a quiet moment to read all the fine print and see what they’re really offering, b.) educate yourself; get a copy of the HASP guidelines and read all the fine print and empower yourself with the “facts” and c.) be prepared to supply the following information;
- information about the monthly gross income of your household including recent pay stubs if you receive them or documentation of income you receive from other sources
- your most recent income tax return
- information about any second mortgage on the house
- payments on each of your credit cards if you are carrying balances from month to month, and
- payments on other loans such as student loans and car loans.
Sited Links;
U.S. Government | Financial Stability
U.S. Department of Treasury Housing Affordability Stability Plan, Fact Sheet [*PDF]
U.S. Department of Treasury | Emergency Economic Stabilization Act [*PDF]
U.S. Department of Treasury | Homeowner Affordability Plan, Consumer Q & A [*PDF]
Tampa Bay Business Journal | Bank of America extends foreclosure moratorium
