03-04-09

President Obama releases today the official guidelines for the much awaited homeowner foreclosure bailout plan or the Homeowner Affordability and Stability Plan. The plan focuses on making mortgage modifications available to more homeowners in a broader range of situations which would allow more homeowners to qualify for this aid. The plan also helps to push banks to consider loan modification before they start seeking foreclosure judgments against the homeowner.

The plan will set guidelines that calls for the banks and loan servicers to lower total mortgage payments to 31% of the homeowners current gross income, but interest rates can not go below 2%. The government is expected to subsidize a large amount of this as well as send incentives to banks to ensure their participation. If the lender can not get the 31% of gross income ratio they will be allowed to extend the loan out to 40 years to reduce payments. The loan will remain at that low rate for 5 years and then every year after the percentage rate would raise by 1% each year. Also if the borrower keeps up with the payments the loan will be reduced by $1000 per year for 5 years.

Also the plan will allow homeowners to refinance into low cost loans even if they are not late yet and they can do so up to 105% of the value of the home. This provision is expected to help up to 5 million homeowners who are desperately struggling to make their current high mortgage payments.

Borrowers must meet these guidelines in order to partake in this modification plan:

1. The mortgage must have been originated before January 1st 2009
2. The total primary mortgage must be below $729,500
3. The home must be the primary residence. Investment or second homes are not eligible.
4. Proof of income in the form of paystubs or tax returns
5. Sign and submit a statement of hardship with proof
6. Your housing payment is more then 31% of your gross income
7. Must attend debt counseling if total debt is greater then 55% of gross income.
8. You can be underwater and owe more then the house is worth

For the refinancing part of the plan the following must be met:

1. Loans owned or guaranteed by Fannie Mae or Freddie Mac
2. Current on mortgage payments
3. Can prove you can afford the new mortgage payment
4. Mortgage balance is not more then 105% of the current value.

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