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Who Gets Mortgage Help Under Obama's Plan?

by M. Gwertzman, sbup

President Obama unveiled his $275 billion plan to provide mortgage relief to homeowners yesterday, but there are still many details to be announced. The full plan – called the Homeowner Affordability and Stability Plan - will be released on March 4th, but until then, homeowners who think they might benefit should examine their own finances and situation to make sure they meet the eligibility guidelines.

The Treasury Department’s fact sheet is a good place to start .

The two main thrusts of the program are to help homeowners modify mortgages that they cannot presently keep on top of, and to help those who are unable to refinance their mortgages because the value of their home has dropped.  The plan aims to help out close to 9 million homeowners.

It’s important to note that the plan doesn’t help everyone who’s been affected by the housing mess. Speculators or investors stuck with houses they can’t sell are out of the picture; only homeowners who commit to staying in their homes will benefit.

sbup has a few tips for what homeowners should do now if they want to take advantage of the plan. Here is some more basic information about the plan and its parameters.

I’d like to refinance my mortgage: If your mortgage is owned or guaranteed by Fannie Mae (Stock Quote: FNM) or Freddie Mac (Stock Quote: FRE), you may able to refinance into a 30 or 15 year fixed-rate mortgage. To be eligible, your mortgage must not exceed 105% of the current market value of the property. The current price of a property will be determined once the refinance application process is underway. According to the White House, to be eligible, you must have “sufficient income to make the new payment and an acceptable mortgage payment history.” The criteria will be specified on March 4th.

Refinancing may help lower your monthly payments, but it won’t reduce the amount of money you owe. The plan aims to help homeowners refinance into a stable loan with a fixed, affordable payment. Over the life of that loan, that translates into less interest paid on the mortgage. The idea is to make a refinance available to homeowners presently “underwater” on their mortgage.

I’d like to modify my loan: Under the plan, lenders are given incentives to modify existing loans so that borrowers are better able to meet their obligations. The goal is to assist homeowners already behind on mortgage payments, or who may be facing imminent default.

To be eligible:
•    You must live in your house as a primary residency
•    Your monthly payment must exceeds 31% of your monthly gross income
•    Your loan can’t exceed Fannie Mae or Freddie Mac loan limits (typically $417,000, but higher in some areas)

The government is providing substantial incentives to both the lenders who modify loans and borrowers who keep up with their monthly payments. Borrowers can get up to $5,000 applied against the balance of their debt if they stay current for five years. Modifying a loan under the plan is also free – so borrowers should watch out for any organizations offering fee-based assistance with loan modifications.

Last week, Citibank (Stock Quote: C) and Bank of America (Stock Quote: BAC) announced a moratorium on foreclosure sales, which will extend until the eligibility guidelines are announced. So from now until March 4th, when the plan kicks in, homeowners who feel they are eligible for a refinance or modification should collect all their pertinent financial information: pay stubs, tax returns, other debt and loan payments (credit cards, student loans), and any other relevant documents.

There’s plenty of information on the web from the White House and Treasury as well.

•    Three scenarios for homeowner support under the plan (PDF)
•    Executive Summary of the plan (PDF)
•    Treasury Department Q&A (PDF)

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