Sunday, February 22, 2009

Questions and Answers for Borrowers about the Homeowner Affordability and Stability Plan

As a real estate broker, I have a lot of people approach me with questions regarding how the Homeowner Affordability and Stability Plan impacts their specific situation.

Below you will find Q&A from President Obama's blog. You may find this helpful when trying to determine what options are available for you.

Borrowers Who Are Current on Their Mortgage Are Asking:

What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?
Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.

I owe more than my property is worth, do I still qualify to refinance under the Homeowner Affordability and Stability Plan?
Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.

How do I know if I am eligible?
Complete eligibility details will be announced on March 4th when the program starts. The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac. I have both a first and a second mortgage.

Do I still qualify to refinance under the Homeowner Affordability and Stability Plan?
As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan. Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage.

Will refinancing lower my payments?
The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan. Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments. Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate. These borrowers, however, could save a great deal over the life of the loan. When you submit a loan application, your lender will give you a 'Good Faith Estimate' that includes your new interest rate, mortgage payment and the amount that you will pay over the life of the loan. Compare this to your current loan terms. If it is not an improvement, a refinancing may not be right for you.

What are the interest rate and other terms of this refinance offer?
The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment. All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate. The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender. Interest rates may vary across lenders and over time as market rates adjust. The refinanced loans will have no prepayment penalties or balloon notes.

Will refinancing reduce the amount that I owe on my loan?
No. The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans. Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe. However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.

How do I know if my loan is owned or has been securitized by Fannie Mae or Freddie Mac?
To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible to be refinanced, you should contact your mortgage lender after March 4, 2009.

When can I apply?
Mortgage lenders will begin accepting applications after the details of the program are announced on March 4, 2009.

What should I do in the meantime?
You should gather the information that you will need to provide to your lender after March 4, when the refinance program becomes available. This includes: information about the gross monthly income of all borrowers, including your most recent pay stubs if you receive them or documentation of income you receive from other sources your most recent income tax return information about any second mortgage on the house payments on each of your credit cards if you are carrying balances from month to month, and payments on other loans such as student loans and car loans.

Borrowers Who Are at Risk of Foreclosure Are Asking:

What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments?
The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

Do I need to be behind on my mortgage payments to be eligible for a modification?
No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.

How do I know if I qualify for a payment reduction under the Homeowner Affordability and Stability Plan?
In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final eligibility will be determined by your mortgage lender based on your financial situation and detailed guidelines that will be available on March 4, 2009.

I do not live in the house that secures the mortgage I would like to modify. Is this mortgage eligible for the Homeowner Affordability and Stability Plan?
No. For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible. If you used to live in the home but you moved out, the mortgage is not eligible. Only the mortgage on your primary residence is eligible. The mortgage lender will check to see if the dwelling is your primary residence.

I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible?
Yes. Mortgages on 2, 3 and 4 unit properties are eligible as long as you live in one unit as your primary residence. I have two mortgages. Will the Homeowner Affordability and Stability Plan reduce the payments on both? Only the first mortgage is eligible for a modification.

I owe more than my house is worth. Will the Homeowner Affordability and Stability Plan reduce what I owe?
The primary objective of the Homeowner Affordability and Stability Plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Lenders are likely to lower payments mainly by reducing loan interest rates. However, the program offers incentives for principal reductions and at your lender?s discretion modifications may include upfront reductions of loan principal.

I heard the government was providing a financial incentive to borrowers. Is that true?
Yes. To encourage borrowers who work hard to retain homeownership, the Homeowner Affordability and Stability Plan provides incentive payments as a borrower makes timely payments on the modified loan. The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.

How much will a modification cost me?
There is no cost to borrowers for a modification under the Homeowner Affordability and Stability Plan. If you wish to get assistance from a HUD-approved housing counseling agency or are referred to a counselor as a condition of the modification, you will not be charged a fee. Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance.

Is my lender required to modify my loan?
No. Mortgage lenders participate in the program on a voluntary basis and loans are evaluated for modification on a case-by-case basis. But the government is offering substantial incentives and it is expected that most major lenders will participate.

I'm already working with my lender / housing counselor on a loan workout. Can I still be considered for the Homeowner Affordability and Stability Plan?
Ask your lender or counselor to be considered under the Homeowner Affordability and Stability Plan.

How do I apply for a modification under the Homeowner Affordability and Stability Plan?
You may not need to do anything at this time. Most mortgage lenders will evaluate loans in their portfolio to identify borrowers who may meet the eligibility criteria. After March 4 they will send letters to potentially eligible homeowners, a process that may take several weeks. If you think you qualify for a modification and do not receive a letter within several weeks, contact your mortgage servicer or a HUD-approved housing counselor. Please be aware that servicers and counseling agencies are expected to receive an extraordinary number of calls about this program.

What should I do in the meantime?
You should gather the information that you will need to provide to your lender on or after March 4, when the modification program becomes available. This includes information about the monthly gross income of your household including recent pay stubs if you receive them or documentation of income you receive from other sources your most recent income tax return information about any second mortgage on the house payments on each of your credit cards if you are carrying balances from month to month, and payments on other loans such as student loans and car loans.

My loan is scheduled for foreclosure soon. What should I do?
Contact your mortgage servicer or credit counselor. Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower's eligibility.

Friday, February 13, 2009

Stimulus Tax Credit Changes

The $790 billion stimulus package hammered out by House and Senate conferees late yesterday afternoon drops the repayment feature on the home buyer tax credit. This is great news since the repayment requirement was a discouraging some buyers from taking advantage of the tax credit.

The legislation also extends the effective date of the tax credit, which is for up to $7,500, to September 1 (from June 30). Buyers that purchase a home in 2009 using financing assistance from state and local mortgage bonds will be permitted to use the credit as well.

Hopefully the combination of changes will encourage more buyers to "get moving".

Other provisions reportedly in the bill that could help housing markets and communities include:
  • FHA and conforming loan limits - Specifics have not been released but reports indicate that the 2008 limits have been reinstated for 2009 except in those communities where the 2009 limits are higher. Additional increases in individual communities may also be available at the discretion of the secretary of the U.S. Department of Housing and Urban Development.
  • Foreclosure mitigation and neighborhood stabilization - Funding for states and localities to be used for neighborhood stabilization activities for the redevelopment of abandoned and foreclosed homes are authorized. Some news reports put the funding level at $2 billion.
  • Rental assistance - Up to $1.5 billion to provide short-term rental assistance and other aid for families during the economic crisis.
  • Transportation infrastructure - Up to $29 billion for highway construction projects, $8 billion for rail projects, and $5 billion to weatherize low-income homes.
  • Rural housing development - Increased funding for the Rural Housing Service direct and guaranteed loan programs.
  • Low-income housing grants - Allow states to trade in a portion of their 2009 low-income housing tax credits for Treasury grants to finance the construction or acquisition and rehabilitation of low-income housing, including those with or without tax credit allocations.
  • Tax-exempt housing bonds - Tax-exempt interest earned on specified state and local bonds issued during 2009 and 2010 will not be subject to the Alternative Minimum Tax (AMT). In addition, financial institutions will have greater capacity to purchase tax-exempt state and local bonds.
  • Energy efficient housing - Grants for energy retrofits for federally assisted housing (Section 8), funding for energy efficiency and conservation block grants to states, and Increases in the residential tax credit through 2010 for certain energy efficient upgrades.

Friday, February 6, 2009

Real Stimulus for Housing Industry!!!

If you have been watching the news this week, you may have noticed that the debate in Washington has finally turned toward real stimulus for the housing industry. As a result, many believe that we could be on the brink of a substantial turn around in the real estate market. Now we need to make sure that our legislators support this stimulus. It is critical that we all join together and deliver a powerful message.

Last night, the Lieberman/Isakson Amendment was included in the senate version of the Economic Stimulus Bill by a unanimous voice vote. This amendment would provide a Tax Credit to all home buyers at the rate of 10% of the sales price up to a limit of $15,000. The credit would be available for a one year period to all purchasers of primary residences.

Today, the senate expects to debate Amendment 353, a proposal by Senator John Ensign (R-NV) that would provide 30 year fixed financing at a rate of about 4%, for anyone purchasing a primary residence.

If these two provisions survive in the final passage of a stimulus bill they could have a tremendous impact on our industry. If they are coupled together with provisions to ease the flow of credit and reduce foreclosures, we could see an immediate and dramatic turn-around in real estate.

These provisions could represent real economic stimulus. They will put money in the hands of millions of homeowners, increase sales, stabilize home values and add more revenues to local communities in the form of property taxes.

It is important that we make a difference. You can do so by contacting your senators and representatives to let them know that you believe these provisions are essential components of any stimulus bill. You can go to the official Senate and House web sites to locate the email and phone number of your legislators.

This may be one of the most critical moments for the real estate industry in our time. Pass this information on! The outcome of this legislation will have a lasting impact on us all!