The government has launched a number of plans in order to provide relief to homeowners who are unable to make the necessary mortgage payments. These programs assume the form of low cost refinancing and payment modification to help distressed homeowners.
Foreclosures have become rampant due to the inability of the borrowers to make mortgage payments. As a result of defaulting on mortgage payments, many borrowers have lost their homes. The government, in an effort to stabilize the housing market, is providing assistance to the borrowers to help them pay off their mortgage dues.
On February 10, 2009, the Obama Administration announced the Financial Stability Plan to tackle the financial crisis and help speed up the process of economic recovery. Since the crash in the housing market is said to have contributed to the current recession, it is hoped that efforts to stabilize the housing market will go a long way in ensuring financial stability and eventual economic recovery.
The Programs
Making Home Affordable Program
It is a part of the Financial Stability Plan. It is intended to help people make mortgage payments and thus prevent avoidable foreclosures. This program has helped more than 9 million Americans reduce their monthly mortgage payments and bring them down to affordable levels. It is meant for borrowers who are at an imminent risk of defaulting on loans, owned or guaranteed by Fannie Mae or Freddie Mac. The Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP) are a part of this program.
Home Affordable Modification Program (HAMP)
The aim of this program is to modify first mortgage payments so that the borrowers have an affordable payment structure, provided the mortgage was obtained before 1st January, 2009. The government is providing incentives to lenders to reduce interest rates, so that the homeowner can make the required mortgage payments. In fact, the interest rate can be as low as 2 percent, if deemed necessary. The rate of interest, that may be below the market rate, is fixed for a period of 5 years from the date of the loan modification.
After the 5th year, the interest may increase at the rate of one percent annually, till it reaches the market rate that existed at the time of the loan modification. The government has provided a number of incentives to private lenders to ensure that they voluntarily participate in HAMP. The monthly mortgage payments should be greater than 31 percent of the pre-tax income. The borrower can only finance a first mortgage on his primary residence.
Moreover, the mortgage dues should be $729,750, $934,200, $1,129,250 and $1,403,400 for one, two, three, and four unit houses respectively. People who have a second mortgage are eligible for primary mortgage payment modification. One would also have to make at least three mortgage payments during the trial period, failing which, one may not qualify for a loan modification under HAMP. The best part about this program is that, the borrower does not have to pay for loan modification or late fees.
Home Affordable Refinance Program (HARP)
This program is meant for eligible borrowers who are current on their mortgage payments, but want to take advantage of lower interest rates by refinancing. Refinancing will not reduce the principal balance but will help people whose mortgage interest rate is much higher than the current market rate. Borrowers who are delinquent or have been overdue for more than 30 days in the last 12 months, will not qualify for refinancing under HARP.
Moreover, the amount due should not exceed 125 percent of the current market value of the property. Refinancing from an adjustable rate loan (ARM) to a low fixed rate loan or eliminating interest only payments or balloon payments, help make the repayment structure more convenient for the borrower. This program has been extended with several modifications and is scheduled to end on December 31, 2015.
HOPE for Homeowners Program
This program was launched on October 1, 2008 and it expired on September 30, 2011. While the Making Home Affordable Program is only meant for loans owned or guaranteed by Fannie Mae or Freddie Mac, HOPE for Homeowners Program covers FHA (Federal Housing Administration) Insured loans. The program aims to help borrowers refinance their home even if the built up home equity is less than 20 percent.
This is done by promising FHA, a share of built up home equity in case the house is sold by the homeowner. On May 20, 2009, ‘Helping Families Save Their Homes’, bill was signed into law. This act aims to modify HOPE for Homeowners Program with the intention of providing additional compensation for primary and subordinate mortgage holders.
HOPE Now
It is a joint alliance between counselors, mortgage companies, and investors, which aims to aid homeowners in distress by helping them avoid foreclosures. Project Lifeline, launched in February 2008, was launched to help owners who were falling back on their mortgage payments. Six private lenders decided to delay foreclosures for 30 days and work out an affordable mortgage payment structure for those delinquent on their mortgage payments for more than three months.
Project Lifeline was also a result of government persuasion. Government help to stop foreclosures will go a long way in stabilizing the housing market and giving a boost to the economic recovery. This organization has grown over the years and mortgage companies that are its members include Bank of America, Caliber Home Loans, HSBC Mortgage Corporation, OneWest Bank, PNC Mortgage, Seterus, Wells Fargo and Company, etc., as of 2014.
