Decoding the Housing and Loan Modification Plan
If you’re like most everyone else in America, you’ve heard about the President’s recently unveiled plan to help millions of homeowners refinance or modify their mortgages.
However, most Americans (and even a fair share of mortgage lenders and financial reporters) are still scratching their heads over exactly who the plan is for and how it works.
The “Making Home Affordable Plan” was created to help two groups of homeowners:
1. People who are making their mortgage payments, but were unable to qualify for refinancing in the past because they owe more on their house than it’s currently worth.
2. People who are at risk for imminent foreclosure.
If you owe more than your home is worth (also known as negative equity or “being underwater”), the new Obama housing plan offers a special refinancing program known as the Home Affordable Refinance Plan. (This plan is called DU Refi Plus™ at Fannie Mae and Relief RefinanceSM at Freddie Mac.)
This program will allow more than 5 million people who didn’t qualify for a mortgage in the past to refinance.
If you are having problems making your payments and are at risk of foreclosure, the plan provides a special loan modification program for troubled homeowners.
A loan modification is exactly what it sounds like – a lender modifies the terms of your original loan, typically to reduce your interest rate or payment. In this program, your mortgage rate would be reduced for five years.
Loan modification programs have existed for some time now, but have, in general, been failures. The government is trying to correct this by creating specific requirements and a more rigorous process behind loan modifications.
It’s important to note that the loan modification program in this plan is intended to help keep the most troubled homeowners in their homes. It is not for people who can currently pay their mortgages.
If you’re like 90% of Americans who’ve been paying your mortgage on time, you can benefit from some of the lowest mortgage rates in history. The Fed has been taking action to keep rates as low as possible. However, their ability to control mortgage rates is limited.
If you held off pulling the trigger on a refinance until the details of the administration’s housing plan were made public, it’s time to revisit your mortgage right away. While rates continue to be low, they could change at any time, so waiting any longer could cost you money.