My New Blog

As promised the US Dept of Treasury provided details on its life preserver program for mortgages.  The guidelines address two programs for struggling homeowners: a Refinance program and a Modification program.  No word yet on the previously mentioned/threatened provision which would allow bankruptcy judges the power to modify those loans--but DC will offer more on that later.  For now, its two options: refinance or modify.

Refinance.  This is for Freddie or Fannie owned loans only.  You can contact your servicer (whomever you send your mortgage payment to each month) to find out if you have a Freddie of Fannie loan.  If so, refinance may be available up to 105% of your home's value. Borrowers have until 2010 to apply.  If you do not have a Freddie or Fannie loan, this is not an option for you. For many California homeowners, this program will not be viable option because the previous limits for conforming loans will mean you do not have a Freddie or Fannie loan.   

Modify.  This is a much more complicated program and I will post a pdf document with the guidelines on my website.  Overly simplified (and assuming I read it right) if the lender will reduce your loan to as low as 38% of your gross monthly income (38% debt to income ratio), they are paid $1K per loan modified.  If they further reduce the loan to a ratio of as low as 31%, then the lender is reimbursed by the program for up to 1/2 of the cost (of reducing from 38 to 31%).  The modification is for up to 5 years or until the loan is paid off.  The borrower is paid up to $1,000 in principal forgiveness each year that they are current in the program, up to 5 years.  The lender is paid up to $1,000 per year for up to 3 years for continued success. 

How do they get your payment down?  First by interest rate reduction (with a floor/limit interest rate of 2%) during those 5 years.  If that doesn't reduce your payment to get you in that 38% window, then they can extend the term to 40 years.  If that doesn't get you to the target, the lender can forebear principal (means you don't pay interest on it and you do not owe it until the loan is matured or you sell the property.  Its not forgiving the principal, its forebearing it until a later time).

To be eligible, your loan balance can not be greater than $729,750 for a single family residence, the home MUST be your primary residence and you must live there.  Borrowers must provide access to their most recent tax returns and two most recent pay stubs and must sign an affidavit of hardship based on a change in the borrowers circumstances (loss of income, high interest rate loan, etc).  The program is only available for loans made before 1/1/2009.

That's it for now.  If you have any real estate questions, do not hesitate to call or email. 

 Melinda johnsonlaw@sbcglobal.net (714) 863-5485