Making Homes Affordable
The new Administration has introduced a comprehensive Financial Stability Plan to address some of the key problems at the center of the financial crisis. A critical piece of that effort is making homes affordable - to stabilize the housing market and help up to 9 million Americans reduce their monthly mortgage payments to more affordable levels. The Financial Stability Plan has two components, (1) the Home Affordable Refinance Program, and (2) the Home Affordable Modification Program.
Home Affordable Refinance Program
The Home Affordable Refinance Program provides up to 5 million homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac an opportunity to refinance into more affordable monthly payments. Homeowners who are current on their mortgage payments but unable to refinance to a lower interest rate because home values have decreased may be able to refinance under this Program.
Home Affordable Modification Program
The Home Affordable Modification Program commits $75 billion to keep up to 4 million Americans in their homes by preventing avoidable foreclosures. Homeowners who can no longer afford to make monthly loan payments may qualify for a loan modification to make their monthly mortgage payment more affordable. Millions of borrowers who are current, but having difficulty making their payments and borrowers who have already missed one or more payments may be eligible.
To find out if you are eligible, the government has established a new website, MakingHomeAffordable.gov, with self-assessment tools to help determine eligibility. Use CalculatorPlus mortgage loan calculators to help you save and make the right decision.
Loan Modification
With mortgage foreclosures reaching an all-time high, Congress, the Federal Government and major banks have all begun to support loan modifications in some way. Millions of homeowners are either in foreclosure or delinquent on their mortgage payments. And, with rising unemployment, deepening of the recession, not only Wall Street and the Big 3 Auto Companies need a bail-out, but ordinary middle-class homeowners on Main Street need a bail-out as well.
An early proponent of loan modification was Sheila Bair at the FDIC. And although she met with oppositions from the Treasury Department and others, the FDIC controlled IndyMac Federal Bank (IndyMac Bank failed in July 2008 and was taken over by the FDIC) was one of the first to offer loan modification to their delinquent homeowners.
Recently, Congressional lawmakers are calling for banks accepting further Federal bailout funds to adopt loan modification. Many lawmakers are saying Congress would be unlikely to approve any request from the Treasury for the additional $350 billion in bank bailout funds unless there was an agreement to have some of the money used to modify mortgages.
The American Bankers Association, which represents many of the largest U.S. financial institutions, said it believes the Troubled Asset Relief Program (TARP) is a logical source of funding for the program. In a letter to the Treasury Department and the Federal Deposit Insurance Corp, the ABA said it supports the FDIC's loan modification program but with some changes that would protect their potential losses on re-defaults sooner than under the current plan.
The Government’s sponsored HOPE for Homeowners program, which is designed to help homeowners at risk of default and foreclosure on their mortgage refinance into more affordable mortgage loans, is one of the earlier program offered by the Government to help delinquent homeowners avoid foreclosure. You can click on the following hyperlink to find-out about HOPE for Homeowners.
Summarized below are some of the key loan modification guidelines from banks that have announced loan modification programs, starting with IndyMac Federal Bank. We will be adding other banks as they announce and rollout their loan modification programs.
IndyMac Federal Bank Loan Modification
IndyMac Bank was one of the larger bank failures seized by the FDIC in July 2008 and is now operating as IndyMac Federal Bank. IndyMac's loan modification program was implemented to achieve affordable mortgage payments. It began in August of 2008 and has no definite termination date.
IndyMac Federal Bank has implemented this program to modify troubled mortgages. The program is designed to achieve affordable and sustainable mortgage payments for borrowers and increase the value of distressed mortgages by rehabilitating them into performing loans.
The eligibility requirements for this program are as follows:
- Must be a first mortgage and must be a loan owned, or securitized and serviced, by IndyMac Federal
- Primary residence and owner occupied
- IndyMac borrower already seriously delinquent or in default.
- IndyMac borrowers at risk of default due to payment resets or changes in the borrowers’ repayment capacities.
- Modifications would be designed to achieve sustainable payments at a 38 percent debt-to-income (DTI) ratio of principal, interest, taxes and insurance.
There are no fees or other charges for this modification. Additionally, all unpaid late charges will be waived.
To learn more about this program, visit either the FDIC or Indymac Federal Bank websites.
Citigroup Homeowner Assistance program
Citigroup launched its Citi Homeowner Assistance program in November 2008, and which is avaialble over the next six months. This program will preemptively reach out to a select group of 500,000 homeowners whose mortgages Citi holds; these homeowners are not currently behind on their mortgage payments, but some may require help to remain current on their mortgages. This effort is expected to result in workouts of approximately $20 billion in underlying mortgage balances.
Citigroupi also recently streamlined its existing loan modification program, which is similar to the FDIC/IndyMac model, to aggressively rework delinquent loans. This program uses a simplified formula to determine an affordable payment as a percentage of the borrower's gross income and then reduces the monthly payment to that amount by one or more of the following: interest rate reduction, extension of term or forgiveness of principal.
Homeowners who are in foreclosure or facing delinquency can visit Citigroup to find out more about this homeownership Preservation program.
Bank of America’s Nationwide Homeownership Retention Program for Countrywide Customers
Bank of America announced the creation of a proactive home retention program that will systematically modify troubled mortgages with up to $8.4 billion in interest rate and principal reductions for nearly 400,000 Countrywide Financial Corporation customers nationwide. The program was launched December 1, 2008.
The program was developed together with state Attorneys General and is designed to achieve affordable and sustainable mortgage payments for borrowers who financed their homes with subprime loans or pay option adjustable rate mortgages serviced by Countrywide and originated prior to December 31, 2007.
In states participating in the program, Countrywide will provide up to $150 million in relief payments to borrowers who default early in their loan terms or after an interest rate reset, while committing more than $70 million to a relocation assistance program to help borrowers who are unable to retain their homes with relocation costs.
On December 1, 2008, Countrywide began proactively contacting potentially eligible borrowers under this program. Countrywide will continue to proactively contact delinquent borrowers and offer streamlined loan modifications, and report the progress of this agreement to the participating states on a regular basis.
For more information, visit Countrywide.
JPMorgan Chase Bank Loan Modification
In October 2008, Chase announced it is expanding its mortgage modification program designed to keep more families in their homes, including extending its modification programs to WaMu and EMC customers.
While implementing these enhancements, Chase will not put any additional loans into the foreclosure process. This will give affected homeowners an opportunity to take advantage of the enhancements, and applies only to owner-occupied properties with mortgages owned by Chase, WaMu or EMC, or with investor approval.
The program is expected to help 400,000 families - with $70 billion in loans - in the next two years. Both the existing and enhanced programs apply only to owner-occupied properties with mortgages owned by Chase, WaMu or EMC, or with investor approval.
For Chase, WaMu and EMC customers, Chase will:
- Review its entire mortgage portfolio to determine proactively which homeowners are most likely to require help.
- Reach out to homeowners to offer pre-qualified modifications such as interest-rate reductions and/or principal forbearance.
- Establish 24 new regional counseling centers to provide face-to-face help in areas with high delinquency rates.
- Not add any more Chase-owned loans into its foreclosure process while enhancements are being implemented.
- Expand the range of financing alternatives offered to modify pay-option ARMs, including 30-year, fixed-rate loans with affordable payments, principal deferral and interest-only payments for 10 years. All the alternatives eliminate negative amortization.
Federal Government (FHFA) Loan Modifications
In November 2008, the Federal Government announced a major program designed to reduce foreclosures with streamlined loan modification to get struggling homeowners into mortgages that they can afford.
In an effort to streamline the loan modification process and establish wider participation among lenders, The Federal Government Loan Modification (FHFA) Program will be implemented on December 15, 2008. There is no termination date.
The following participants for FHFA include:
- Fannie Mae
- Freddie Mac
- Federal Home Loan Banks
- Wells Fargo
- Department of the Treasury
- Federal Housing Administration (FHA)
- Federal Housing Finance Agency
- HOPE Now lenders
- Borrowers must be delinquent by three or more payments.
- Property must be owner occupied as a primary residence.
- Borrowers who have filed for bankruptcy are ineligible.
- Borrowers must be able to afford a 38% PITI debt-ratio payment.
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