Do You Qualify for Refinancing or

Other Assistance Under the New

Homeowner Affordability and Stability Plan?

 

BY MIRKIN & GORDON, P.C.

 

President Obama recently unveiled his Homeowner Affordability and Stability Plan as part of a comprehensive strategy to get the economy back on track.  The Plan states that it will “help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure.”  The key components of the Plan are:

 

Enable up to 4 to 5 million Responsible Homeowners to Refinance and Reduce Their Monthly Payments

 

Under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time securing refinancing (For example, if a borrower’s home was worth $200,000, he or she would have limited refinancing options if he or she owed more than $160,000.)  Under the Obama Plan, 4 to 5 million homeowners who took out conforming loans[*] owned or guaranteed by Freddie Mac or Fannie Mae will be provided the opportunity to refinance through the two institutions over time.  The Treasury Department has provided the following two examples to illustrate how refinancing through Freddie Mac and Fannie Mae would work:

 

Family A: Access to Refinancing

 

·        In 2006: Family A took a 30-year fixed rate mortgage of $207,000 on a house worth $260,000 at the time. (The family put just over 20% down.) They received a Fannie Mae conforming loan with an interest rate of 6.50%.

 

·        Today: Family A has about $200,000 remaining on their mortgage but their home value has fallen 15% to $221,000. – Their “loan-to-value” ratio is now 90% making them ineligible for a Fannie Mae refinancing.

 

·        Under the Refinancing Plan: Family A can refinance and obtain a rate of 5.16%.  This would reduce their annual payments by nearly $2,350.

 

	Existing Mortgage	Refinancing
Balance	$199,584	$203,575
Remaining Years	27	30
Interest Rate	6.50%	5.16%
Monthly Payment	$1,308	$1,113
Savings	$196 per month, $2,347 per year

 

Family B: Access to Refinancing

 

·        In 2006: Family B took a 30-year fixed rate mortgage of $350,000 on a house worth $475,000 at the time.  (The family put just over 26% down).  They received a Fannie Mae conforming loan with an interest rate of 6.50%.

 

·        Today: Family B has about $337,460 remaining on their mortgage but their home value has fallen to $400,000.  – Their “loan-to-value” ratio is now 84%, making them ineligible for a Fannie Mae refinancing.

 

·        Under the Refinancing Plan: Family B can refinance and obtain a rate of 5.16%. This would reduce their annual payments by nearly $4,000.

 

	Existing Mortgage	Refinancing
Balance	$337,460	$344,210
Remaining Years	27	30
Interest Rate	6.50%	5.16%
Monthly Payment	$2,212	$1,882
Savings	$331 per month, $3,968 per year

 

Create a $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

 

The Treasury Department, working with other federal agencies, will undertake a comprehensive strategy to prevent millions of foreclosures and help families stay in their homes.  This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly.  The initiative helps those who commit to make reasonable monthly mortgage payments to stay in their homes – providing families with security and neighborhoods with stability. The Treasury Department has provided the following example to illustrate how this initiative would work:

 

Family C: Eligible for Homeowner Stability Initiative

 

·        In 2006: Family C took out a 30-year subprime mortgage of $220,000, on a house worth $230,000 at the time (they put less than 5% down).  Their mortgage broker – Mom & Pop Mortgage – sold their loan to Investment Bank.  The interest rate on their mortgage is 7.5%.

 

·        Today: Family C has $214,016 remaining on their mortgage but their home value has fallen –18% to $189,000.  Also, in November, one parent in Family C was moved from full-time to part-time work, causing a significant shock to their income.  Their loan is now 113% the value of their home, making them “underwater” and unable to sell their house.  Meanwhile, their monthly mortgage payment is $1,538 and their monthly income has fallen to $3,650, meaning the ratio of their monthly mortgage debt to income is 42%. 

 

·        Under the Homeowner Stability Initiative: Family C can get a government sponsored modification that – for five years – will reduce their mortgage payment by $406 a month.  After those five years, Family C’s mortgage payment will adjust upward at a moderate, phased in level.

 

	Existing Mortgage	Loan Modification
Balance	$213,431	$213,431
Remaining Years	27	27
Interest Rate	7.50%	4.42%
Monthly Payment	$1,538	$1,132
Savings	$406 per month, $4,870 per year

 

This article provides a preliminary and brief overview of President Obama’s Plan. As you know, assistance in connection with refinancing a home is available from the Fund’s Legal Services Plan.