Do I Qualify for Home Affordable Refinance Program for Mortgage Refinancing?

Do I qualify for Obama’s Home Affordable Refinance Program for Mortgage Refinancing?

Here is a quick shot of who may be eligible under the new loan programs, including assistance to borrowers who lose their jobs and incentives for lenders to reduce loan balances for underwater borrowers. The information comes from statements by the Obama administration and the Friday analysis of the plans of economists at Goldman Sachs in New York.

Three months of mortgage relief for the unemployed

For three months, unemployed mortgage holders get temporary forbearance on their mortgage. They will still have to shell out 31 percent of their monthly income, but not the total amount they usually have to pay every month for the loan. Loan service providers participating in the ‘ Making Home Affordable Program’- which includes many large lenders – are obliged to provide assistance to all unemployed borrowers who meet the eligibility criteria.

To be eligible, you must show that you are drawing unemployment insurance benefits, that you reside in the home, and that the loan was originated prior to January 1, 2009. The loan balance must be less than $ 729,750. You can not be more than 90 days in arrears in your payments.

Refinancing FHA loans

Participation in this program for Federal Housing Administration is voluntary, with the government committed to provide incentives to encourage lenders to provide capital (balance) relief to subprime borrowers in foreclosure. The target groups are deeply ‘underwater borrowers’, with loan balances far above the current value of your home. The idea is to get a win-win outcome, where borrowers stay in their homes and lenders do not lose as much as they could by foreclosing.

Lenders must agree to reduce the principal balance by at least 10 percent in a first mortgage lien. After refinancing, the first mortgage cannot be greater than 97. 75 of the value of the house (the current FHA limit), but the total loan-to-value (with a lien second) can be as high as 115 percent. In many cases this will mean a substantial write-downs (losses) in the first two lenders and second lien.

To qualify, borrowers must be current on their existing mortgage payments, occupying their house and qualifying under standard underwriting FHA – including a FICO credit score of 500. New loans may not result in a monthly payment more than 31 percent of the borrower’s income. Many borrowers do not qualify, but many do as well.

Mortgage Relief (Other)

In assessing what to do about risk loans, mortgage services in the Home Affordable Modification Program (HAMP)will be “obliged to consider” principal repayments if the loan-value (LTV) is greater than 115 percent. Check whether this would translate into greater value “net present” the loan (for the bank or investors who own it) than other loan-modification options under the HAMP program.

So if your loan is being looked into under the program HAMP, you will be considered. This program will allow some homeowners with negative equity to get a reduction in the stock of capital in stages over three years if they remain current on their payments.

To encourage lenders to opt for loan balance reduction, the government will offer lenders 10 cents for every dollar of capital written down above 140 percent LTV, or 15 cents between the level and 115 percent LTV, and 21 cents for the reduction of LTV below. Second liens that are more than six months in arrears will receive an incentive payment standard 6 percent, according to the report by Goldman Sachs.

When all this is going to start? Soon, the government says, but no date set. One part will be operational in the coming weeks, and all elements (not all of which are pondered here) should be operational this fall, the Obama administration points out.

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Posted by Starwin on 30th March, 2010