Making Home Affordable Refinancing and Loan Modification Program

By Pinyo, on March 19, 2009

This year, President Obama introduced the Making Home Affordable program to help homeowners to keep their homes by making mortgage payments affordable. The plan affects about 7 to 9 million people, and you can use the self-assessment tools to see if you’re eligible. When you visit the tool, you’ll notice that there are two options: Refinancing and Modification.

Note that these programs are only for a primary residence (1 to 4 units), and both require a stable income and an evaluation.

Making Home Affordable Refinancing Program

The refinancing program is designed to help homeowners who are not able to refinance due to a decrease in the value of their home. All loans will be refinanced into 15- or 30-year fixed rate loans at the market rate on closing and there may be refinance fees.

To be eligible for this program:

• You must be current on your payments (e.g., haven’t been late more than 30 days in the last 12 months),
• You cannot owe more than 105% of the value of your home, and
• Your loan must be held by Fannie Mae or Freddie Mac.

The refinancing program may be a good solution for you if:

• Your mortgage interest rate is much higher than the current market rates,
• You are paying interest only, or
• You have a low introductory rate (teaser rate) that will increase.

Note that refinancing does not reduce the principal amount you owe.

Making Home Affordable Modification Program

The modification program is designed to help homeowners who are struggling to make their monthly mortgage payments because their interest rate has increased or they have less income. Modification allows homeowners to get a lower rate making their payments more affordable.

To be eligible for this program, you must demonstrate significant hardship — i.e., loss of income, or have a mortgage payment more than 31% of your gross income. There are also other eligibility requirements for this program not discussed here. If you qualify, your interest rate will be reduced up to 5 years to a rate that makes your mortgage payments affordable. If this isn’t enough, your mortgage may be extended to 40 years, a portion of your principal may be deferred, or the lender may forgive part of the loan.

In addition, the program can pay up to $1,000 per year for up to 5 years toward a reduction in your mortgage. However, the rate may increase after 5 years, but not more than one percentage point per year until it reaches the market interest rate on the day your loan was modified and will be fixed for the life of the loan.

Other Options

If you’re not eligible for the Making Home Affordable program, you could try working directly with your mortgage lender. For example, Citi said that it would help to some of its borrowers.

Additionally, the Treasury Department has tentative agreements with four banks — Bank of America, Chase Bank, Citibank and Wells Fargo — to participate in the Making Home Affordable program, but does not have signed contracts with them yet (source: Houston Chronicle).

In my opinion, if you are struggling to make your monthly mortgage payments or if you think you are stuck with a bad loan, it’s worth doing more research and see if you can get your loan modified or refinanced. However, be wary of any company that guarantees to help modify your loan and promises more affordable payment. There are too many scammers out there looking for a few quick bucks.

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Pinyo is the brain behind Moolanomy personal finance blog and a few other web sites. If you like this article, please subscribe for free daily email updates.

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