Mortgage Modification and Refinance Plans to Avoid Foreclosure | Mortgage

Mortgage Modification and Refinance Plans to Avoid Foreclosure

by DavidSmith

I remember a time when all the neighbors banded together to complain about the vacant, boarded house in their neighborhood. Now, I see neighborhoods where several of these properties exist on each street! And these neighborhoods are not just in urban areas; nice neighborhoods in the suburbs are having the same problem.

Economic conditions and declining real estate values have led to job loss or reduced pay for millions of responsible people who now struggle to make their mortgage payments. Unemployment and corporate cut-backs are expected to force as many as 6 million more families into foreclosure with millions more having trouble making ends meet.

Though the crisis seems to be temporary, something still needs to be done to assist distressed homeowners. Sure, we will find a balance as prices continue to decline and the demand for real estate goes up, but until then, we need to decrease the number of foreclosures which add to the problem.

Vacant, boarded homes are an eyesore to neighborhoods; these properties are often neglected, lawns arent mowed, trash and debris accumulates and kids are attracted to what they think of as their club house or fort. In worse case scenarios, child predators find these empty houses convenient for committing unspeakable acts!

New President Brings New Hope

President Obama and his administration have launched several new programs in March of 2009. As many as 9 million homeowners should benefit from these programs which will make their mortgage payments more manageable. The Making Home Affordable Program was implemented to support a recovery in the housing market by reducing the number of foreclosures and assisting responsible homeowners who struggle to meet their mortgage obligation.

The Making Home Affordable Program requires the cooperation of the government, loan servicers, investors and borrowers who will share the responsibility of helping people avoid foreclosure and stay in their homes.

The Home Affordable Refinance Program

This program will help up to 5 million homeowners refinance their homes and reduce their monthly mortgage payment by taking advantage of historically low interest rates. One of the requirements to qualify is that the amount owed on the home can be no more than 105% of its value. Though many responsible homeowners made down payments on their homes of 20%, and some paid additional principal payments, a number of people still have problems refinancing due to the drastic decline in market values. The programs implemented by the Obama Administration are expected to provide an opportunity for responsible homeowners, whose loans are guaranteed by Freddie Mac or Fannie May, to refinance through these institutions to make their payments more affordable.

The Home Affordable Modification Program

This $75 Billion program is intended to prevent foreclosures and to assist responsible homeowners who are struggling with their mortgage payments. The Treasury Department will work with federal agencies on this comprehensive, multi-part plan to help millions of people who are facing foreclosure.

The Home Affordable Modification Program is expected to help millions of homeowners who struggle to make their mortgage payments, but are unable to refinance due to declining real estate values. So many responsible homeowners have found themselves upside-down with their homes being worth far less than they owe on their mortgage. It is hoped that this program will provide security for families and stability for communities hardest hit by foreclosures.

The beauty of this program is that it brings together all parties involved, including lenders, investors, servicers and borrowers and the government to share in the cost of ensuring that responsible homeowners can afford their monthly mortgage payments. This will result in reduced foreclosures and to avoid further downward pressures on overall home prices.

How it Works

The Treasury will partner with financial institutions and investors to reduce homeowners monthly mortgage payments.

As the lender agrees to a mortgage modification, they will reduce monthly payments to a level no greater than 38% of the borrowers income.

The Treasury shares in the cost so that the payment is further reduced, from 38% to 31% of the borrowers income.

The modified payment amount will be effective for 5 years, and then the interest rate will gradually increase by 1% per year until it reaches the capped rate that is put in place at the time of modification.

To reach the lower payment, interest rates can be reduced to as low as 2%. If the debt-to-income ratio is till above 31%, then lenders will extend the term of the mortgage, amortizing it for a period of up to 40 years, and as a last resort, forbear principal at no interest until the payment is reduced to the 31% target.

Incentives for Lenders who Participate

Lenders and servicers will be awarded $1,000 for each loan modification which meets the guidelines established under this new plan. They will also receive an additional $1,000 per year, for three years, if the homeowner is successful in maintaining the new agreement.

Similar incentives will be offered to servicers and lenders who agree to modify or refinance FHA, VA or Agriculture Department loans, according to the new or similar programs that are in place.

Even more incentives are offered to lenders and mortgage holders who agree to a loan modification before ones payments become delinquent, because it has been found that the success rate of modifications is much better if the mortgage is current.

Hopefully, things will begin to improve as homeowners take advantage of these new programs. Preventing foreclosure will result in stabilizing areas already suffering due to vacant homes.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

This article was written by David Smith, president of U-Move-On, a service to help distressed mortgage borrowers decide the best solution to their foreclosure problem. David provides resources and support to help his customers deal with the foreclosure process and life after foreclosure. His unique program helps people decide if they should walk away or fight foreclosure with loan modification.