Stability and Affordability Program FAQ

Hello Family, Friends, and Referral Partners:

In light of the new reform from federal government on the subject of loan modifications, many homeowners who are current, and have fulfilled their obligation to the bank will finally be recognized. Contrary to current guidelines set in place that do not allow up- to- date customer’s assistance even if default is immanent. If a homeowner lost a significant portion of their income and have been paying their mortgage from a depleting savings account, former stipulations would require these Americans to be three months late before any relief would be considered. Now, the banks will have an incentive from our government to cure future loan default situations before they become a reality. The federal government has also recognized that the formula used to calculate a loan modifications for current, and past due consumers are unreasonable. Previous statutes state that 38% of the household income should go to mortgage payments (first mortgage, second mortgage, taxes, and insurance). This formula resulted in 47% of modified loans becoming delinquent again in six months. The stimulus package will lower the gross monthly income percentage to be paid toward mortgage expenses to 31%. Here’s a look at some of the frequently asked questions:
Do I have to fall behind on my loan payments to be eligible for a loan modification?

No, but borrowers do have to demonstrate that they are in danger of staying current on their mortgage payments and that they don’t have enough income to make their mortgage payments. That could help borrowers whose interest rates are resetting or who have lost their jobs.

Who is eligible for a loan modification?

The program is open only to primary residences and homeowners who are paying more than 31% of their monthly gross income on mortgage payments. Jumbo loans, which exceed Fannie or Freddie loan limits, are not eligible. Final eligibility will be determined by your mortgage lender. Can I modify a second mortgage? No. Only first mortgages are eligible.

Is my lender required to participate?

No. Lenders participate on a voluntary basis, but the government is providing subsidies to encourage lenders and servicers to modify loans. Mortgage servicers, for example, receive $1,000 upfront for each loan modification and can receive an additional $1,000 annually for three years if the borrower stays current on the loan. (Plan is heavy on incentives to modify loans.

Will the government reduce the size of my loan?

For those eligible for the government-subsidized loan modification, borrowers can receive a reduction in loan principal of $1,000 annually for five years if they stay current on their modified loan. Borrowers who aren’t able to qualify for a loan modification because they aren’t in danger of defaulting on their loans may still be able to refinance their loans to take advantage of low interest rates.

Can I refinance my loan if I owe more than my property is worth?

Borrowers with little or no equity can refinance into a 30-year or 15-year fixed-rate mortgage at current rates as long as the amount owed on a first mortgage does not exceed 105% of their home’s current value. The refinance program is only open to borrowers with conforming loans that are owned or guaranteed by Fannie Mae or Freddie Mac. Borrowers must be able to demonstrate that they are current on mortgage payments and that they will be able to meet the new payment terms on the first mortgage.

How do I know if my mortgage is owned or guaranteed by Fannie or Freddie?

It is recommending that borrowers contact their lender at that time to see if their mortgage is owned or guaranteed by Fannie or Freddie.

What happens if I have a second mortgage?

Can I still refinance? Borrowers with more than one mortgage may be eligible to refinance as long as they owe less than 105% the value of their property on the first mortgage. The second mortgage holder will have to agree to remain in a second position on the home.

Are jumbo loan holders eligible?

No. Only those who have mortgages owned or guaranteed by Fannie or Freddie can apply, and the government-held mortgage companies don’t guarantee jumbo loans.

Here are the latest in loan modification guidelines released by the US Treasury: http://www.ustreas.gov/press/releases/reports/modification_program_guidelines.pdf.

Rates are in the low 5’s for most clients right now. It is vital you call and review your situation and take advantage of this new legislation.