The details of the Home Affordable Program, the Obama mortgage plan, have now been released. The initial response is that this is a move in the right direction and will help a lot more people than previous plans did. The plan is broken into 2 parts, one for homeowners who are behind on their mortgage and facing foreclosure, and the other for homeowners who are paying off their loan as agreed, but haven’t been able to take advantage of refinancing into a lower rate because they have lost equity in their homes.

Here is a quick breakdown of both parts of the plan:

Home Affordable Refinance

This part is designed to help homeowners who are well qualified but can’t refinance because they have lost equity in their homes.

• It is available only for those homeowners whose mortgages are held by Fannie Mae or Freddie Mac.
• The refinance can be done by the loan servicer or any lender who is an authorized Desktop Underwriter user (mortgage bankers and mortgage brokers).
• This is available for owner occupied homes only, second homes and investment properties don’t qualify.
• Borrowers will be able to refinance as long as their first mortgage is up to 105% of the appraised value (5% underwater). This will help a lot of borrowers who bought in the last few years with 10 or 20% down payments and have watched their equity disappear, but it probably won’t help buyers who are in deeper water (0% down buyers and those in states like Florida, California and Nevada who have seen the biggest drops in value).
• Mortgage insurance guidelines will be relaxed and based on the equity of your original loan. We need more clarification to see how this will be applied.
• All normal closing costs will apply, but these costs may be rolled into the new loan.
• Many of the Loan Level Price Adjustments (price hits) required for new loans have been eliminated or decreased. Credit scores are still important, but the best pricing is available for a 720 score now, instead of 740, and other Fico hits are lower.
• The new loan can be either a 30 year or a 15 year fixed rate.

Most of the major wholesale lenders have agreed to participate with this new program, but we still don’t know how some of the details will be applied. This is program is separate from the normal refinance programs so pricing may be different. If it is close to normal pricing it will help a lot of borrowers. Also, most of the less than 20% down payment purchase loans taken on over the last several years didn’t use mortgage insurance but a combination of a first and a second mortgage. These second mortgage holders will have to agree to subordinate the loans to the new first loan in order for this to work (as a rule, they aren’t doing this now).

Loans will be eligible after April 4^th, so we will have more specifics as the wholesale lenders figure out how this will all work. The first step to see if you qualify, is to find out if your loan is held by Fannie or Freddie. Here are the links to see if Fannie or Freddie hold your loan. I will be able to help with these loans as they are implemented. If you have any questions let me know.

Home Affordable Loan Modification

The second part of the program is for those who are currently delinquent on their mortgage and in danger of foreclosure and need their loan terms modified.

• Also only for Fannie or Freddie loans.
• Available only for owner occupied homes.
• The modification must be done by the company servicing the loan.
• The goal is to bring the borrowers mortgage debt down to 31% of their income, making the loan affordable. The mortgage rate can be adjusted down to as low as 2% for the first 5 years to make this work.
• There are incentives for the mortgage servicer to go along with this program and also incentives for second mortgage holders to come on board.
• There is no maximum loan to value.
• The borrower pays no fees to have their loan modified.
• Borrowers who stay current on their payments will receive a principal reduction of $1,000 per year for the first 5 years.
• You can only modify the loan once.

Here is more information on the specifics of Home Affordable, and here are the links to see if Fannie or Freddie hold your loan. You will need to work with your current lender on this plan and you can call them directly to see if you qualify.

I doubt that this is enough to fix the real estate market on its own, but it is clearly a step in the right direction and will help many homeowners who would otherwise not be able to refinance, and help some distressed home owners keep their homes.

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