Obama Refinance & Loan Modification Programs

Who Qualifies and Who Does Not for Home Mortgage Relief

Mar 6, 2009 David J. Shestokas

On March 4, 2009 President Obama announced his plan to assist the American housing market. The plan has two components: refinance and loan modification.

The Making Home Affordable plan is designed to help around 9,000,000 American homeowners. There are multiple eligibility requirements, and not all owners of single family residential real estate will directly benefit from the plan. Regardless of the government's active involvement it can still be in a home owner's best interest to have professional legal assistance in addressing mortgage problems.

Mortgage relief and credit card reform deal directly with consumer issues arising from the current recession.

Features of the Obama Loan Modification Program

A loan modification, unlike a refinance is not a new loan. Rather it is a change in the terms of an existing loan. The government is providing incentives for lenders to participate in the loan modification process and for home owners to remain current on a modified loan. The incentives are as follows:

• The lender receives up to a $1,500 payment for a qualifying loan modification
• The government will share the cost of a loan modification with the lender for a modification which lowers the borrower’s expense to less than 38% of gross income down to 31%
• The borrower will receive $1,000 annually for up to five years for remaining current on the loan
• The entire government subsidy for the program may run up to $10,500 per home

Home Owner General Qualifications for Obama Loan Modification

• The loan must be controlled by Freddie Mac or Fannie Mae
• The home must be the owner’s primary residence
• The mortgage was originated before Jan. 1, 2009
• Have an unpaid balance that is equal to or less than $729,750 (for a single-family home)
• Mortgage difficulties must be due to financial hardship. This hardship could be the result of an increase in the payments, or the borrower’s income was reduced or there were unexpected issues (medical problems, pay reduction) that increased an owner’s expenses, the owner soon will be unable to make payments. There is a requirement to complete an affidavit of financial hardship.
• The monthly mortgage payment must be more than 38% of the owner’s gross (pre-tax) monthly income. (This is known as the debt to income ratio or DTI.)

Features of the Obama Refinance Program

Refinancing is getting a new loan to replace the existing loan. The major feature of the refinancing element of this program is the allowing the loan amount to exceed 80% of the home’s value. Previously no new loan could be written that was higher than 80%, with the drop in prices this change in standard should enable many to take advantage of the current low mortgage interest rates.

Home Owner General Qualifications for Obama Refinance Program

• The home to be refinanced is owner occupied
• The home loan is controlled by Fannie Mae or Freddie Mac (it must be a conforming loan )
• The mortgage payments are current (there has not been a payment more than 30 days late in the last 12 months)
• There is sufficient income to support a new mortgage
• The existing mortgage is between 80% and 105% of the home’s current value (This is known as the loan to value ratio or LTV)

Single Family Residential Real Estate that Does Not Qualify for Making Home Affordable

There is single family residential real estate that does not qualify for either program. These properties:

• Are Investor Owned
• Are Second Homes
• Have Loan to Value Ratios under 80%
• The Loans are not Controlled by Either Fannie Mae or Freddie Mac

Home Owners Still Need Professional Help

Many homes and home owners do not qualify for either of the government programs. The programs themselves only set minimum standards of relief for government participation. There is nothing to say a given home owner will not achieve greater relief than the minimum standards.

The banks will be flooded with applications, and those applications that are properly presented will receive the quickest response. Many loan modifications that have taken place without government intervention have achieved results exceeding $10,500 in the first year of the modification.

Whether a home owner qualifies for the government programs or not, professional legal assistance in presenting the case to the lender will still be invaluable and potentially lead to better results for the property owner.

The copyright of the article Obama Refinance & Loan Modification Programs in Mortgages/Loans is owned by David J. Shestokas. Permission to republish Obama Refinance & Loan Modification Programs in print or online must be granted by the author in writing.

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Mar 15, 2009 5:22 PM

Guest :

I think this program does not help us. We are paying high interest rate, because of decreasing home value we can not refinance.I tried to refinance but my lender offered me for down payment of marginal money of current home value. But I can not do that.So how can I get current low interest rate for my home. Now I am paying average 6.33 percent of interest, which is about $300 over payment monthly.That means we are cheated by lender also. So If government really want to help us or really want to control forecloser, all of the loan must be adjusted in new low rate interest.Otherwise we can not afford it.
This situation is created by lender.How did they aprove the loan to a single person to buy more than one home? I know there were 7 homes in single person's name.These business men has damaged the home market. How did they get loan for that if his income was same.
if somebody has bought a home for their primary resident,government or lender must consider them. They are real sufferer of this time because of because of home black brokers.

Mar 27, 2009 11:33 AM

Guest :

Countrywide morgage re-financed me from an ARM loan years ago and did not get a subordination letter from my second mortgage co Chase. My FHA loan is now in second place (which I think is illegal) and I cannot refinace now. They expect me to pay upward to 500.00 to Chase to get them to go to second w/no guarentee they will. How is the econmy supposed to get better when working with big bank Corps that dont do thier job. This is the fault of the Adjuster that refinaced me originally. Not mine ! They should be bending over backwards to be sure they get me back in first per FHA guidelines. Please help or advise !

Apr 3, 2009 1:18 AM

Guest :

This program might help many home owners. What about home owners who have a 1st and 2nd, paying on time but due to the decrease in property value are unable to refinance and take adavantage of the lower interest rates and their loans are not controlled by Freddie Mac or Fannie Mae?

Jun 4, 2009 1:16 PM

Guest :

So in order to get help, you have to have a loan with one or two certain companies. You also have to be so far in debt that there is no hope for you otherwise. You also are supposed to get legal representation when applying for all thise mess. If I could afford legal representation, I would be able to pay my mortgage in the first place. Also, what good does this do for the guy thats struggling to keep his head above water? It doesnt help keep anyone from getting in over there heads. It just helps those who are already drowning.

Jul 30, 2009 1:09 AM

Guest :

I've been a home owner for 5 years and have a mortgage through EMC which is an ARM. We were making payments on time before the ARM Adjustments. We since had been late our payments that was $900 jumped to almost 1600. we went on foeberance and since have caught up now payments are 1300 a month. We are still struggling to make payments so when this Obama plan came out we were excited to see if we quailfied to get the payment dropped. I called the lender to find put that we do not quailfy for the Obama loan. I was told by EMC that the only way I can modify the loan is if we were to max out the total amortized payments of the laon to quaily so that means my payments would need to exceed 3500. a month to quailify. by that time it would be too late. how is this obama loan going to help me?

Aug 1, 2009 1:58 PM

Guest :

Haha, I bought my house with a ninja loan and never made a single payment, stayed there for THREE YEARS before it went into foreclosure, then a week before the eviction day I filed Chapter 13. Here it is one year later still in my house made NOT ONE PAYMENT meanwhile my savings account has GROWN to where I can buy a house CASH (which I did in May when the market bottomed out. I got a foreclosure (LOL) in a great neighborhood and I don't need credit since my house is paid for now. WOO HOO!

Aug 25, 2009 6:03 PM

Guest :

EMC is now participating in the Home Affordability Program, as outlined by HUD. If your income is sufficient, you would be eligible to apply for a HAM (home affordability modification) mod under this program, and your payment could be reduced to 31% of your gross income, and that would include Pricipal, interes, taxes and insurance.
Go to http://makinghomeaffordable.gov/
Use a Good Loan mod company to get your mod. There are good companies out there doing good things for homeowners.

Oct 26, 2009 6:27 AM

Guest :

In response to the NINJA loan comment. Before anyone else gets any ideas, US bankcruptcy laws changed back in the beginning of the 21st century. Alot of people were using a loophole to purchase a primary residence using credit cards and then declaring bankruptcy. You see, the old law stated that you could not lose your primary residency to "last of line" credit issuers (credit card companies). This (amoung other forms of fraud) were fixed so that you can now lose your primary residence based on the discretion of the court.

[snip]

Can or will you lose your house in filing bankruptcy?

Maybe. A number of factors are involved in whether or not you will lose your house in a bankruptcy filing. Frequently, but not always, the house is different. If the mortgage payment is up to date, it is usually not a part of bankruptcy. However, state laws differ. Federal rules differ. If it looks like fraud was involved, you can lose your house.

Some States have specific exemptions that the FEDERAL Bankruptcy court (all BK are there) will allow you to use.

In C-13, you probably can get a reasonable amount of back payments included in the plan...and if you complete it, still have the house and remaining mortgage. Of course, once again, if you can't afford the house, it ain't going to matter for long...and in fact, because the C-13 plan essentially increases your payment....you need to know you can afford it well.

Now back to that State exemption thing: Many have an exemption for the amount of EQUITY, that is amount of value above the mortgage debt, that you have in the home. These amounts are frequently surprisingly small.....like $20,000. In essence, if you go BK living in a place that is actually got equity...that is value above the loan (or no loan)...you ain't going to be allowed to keep it and not pay those others you rightfully owe...whose real contention would be..you used the money intended to pay them to buy yourself a house.

Dec 31, 2009 10:58 AM

Guest :

I have excellent credit but due to job changes, my house payment was too high. We thought the only way out was to sale the house, so we put it on the market. We decided to look into refinancing to see if we could keep our house and everything was rolling along nicely and we were excited until the bank called to tell us they learned of a new government stipulation that was never there before. To refinance, you can not have your house on the market for at least months prior to refinancing. Sounds to me like more people are getting burned by the new plan than are getting help. I suppose I should trust them with my health care too. :)

9 Comments