Foreclosure Bailout Plan Released 4/3/2009 By Obama Administration – What Can It Do For You?

Summary of the Obama Foreclosure Rescue Program

There has been a lot of news out of Washington lately about the housing and foreclosure crisis. I get a lot of questions from people wanting to know if they “qualify” for help. So I’m going to briefly review the highlights of President Obama’s plan to reduce foreclosures. It is estimated (by the government) that this plan will help up to 9 million homeowners. According to the Mortgage Bankers Association, there are about 51 million first-time mortgages in the United States, which means about 18% of the total could be eligible. On March 4th, 2009 we finally got the “details” everyone was waiting for. Please note that this is a summary only and there are additional details. The new initiative is called Making Home Affordable (aka MHA); Here are just a few of the government acronyms to keep an eye on: TARP, TALF, H4H, GSE, FNMA, FLHMC, PITI, FHA, VA, USDA, etc. It’s starting to get a little crazy, even for real estate and finance professionals .

The program has two main parts. The first is an eligible mortgage refinance plan known as Home Affordable Refinance. The other part deals with loan modifications and is known as…”Home Affordable Modification”. It’s only a matter of time before these are called “HAR” & “HAM”.

First the HAR (Home Affordable Refinance):

o The current mortgage must be owned or guaranteed by either Fannie Mae (FNMA) or Freddie Mac (FLHMC). If you are unsure whether your mortgage meets this first requirement, you can call (800) 7FANNIE or (800) 7FREDDIE between 8:00 a.m. and 8:00 p.m. EST.
o The property MUST be your primary residence. Second homes and investment properties do not qualify.
o The borrower(s) have sufficient income to qualify.
o The mortgage must be current with no 30-day arrears in the last 12 months.
o The first mortgage cannot exceed 105% of the current market value. Example: If the property is worth $100,000, the maximum amount that can be owed is $105,000.
o If there are other mortgages (second mortgage, home equity line of credit, or other liens), the other lienholders must agree to subordinate their liens in writing to the new first mortgage. Subordinate simply means that the first mortgage retains its senior lien status. It’s okay if the total debt exceeds 105% of its current value, as long as the first mortgage refinance doesn’t break the 105% rule.
o The program officially started on March 4th, 2009.

Now comes the HAM (Home Affordable Modification):

o To be eligible, the lender must be willing to participate. The participation of investors/lenders and service providers is voluntary.
o The aim of the program is to avoid foreclosures as much as possible. Each case is evaluated separately and borrowers must demonstrate that they can afford the changed payment. A stable income is a prerequisite for funding.
o Must have documented financial hardship to qualify.
o The current monthly PITI (Principle, Interest, Taxes, & Insurance Total) must exceed 31% of the gross monthly income of the borrower(s). No jokes are allowed about the acronym “PITI”.
o Borrowers do not have to be current on the monthly payments. Again, each situation is unique and will be assessed on a case-by-case basis.
o The goal of the plan is to reduce the total residential PITI payment for all mortgages to no more than 31% of gross income. This includes any second mortgages or HELOCS that must be willing to participate and subordinate their liens to the new modified mortgage.
o The relevant first mortgage must be for the principal residence of the borrower. Second homes and investment properties are not eligible.
o The applicable mortgage must have been taken out before 1/1/2009 and cannot exceed US$729,750. I’m sure there’s a reason they used a maximum of $729,750, but I can’t find any information on how the government came up with that amount.
o The payment reduction is achieved by lowering the interest rate, extending the term of the loan or through a reduction in principle (last resort). Remember that this is voluntary on the part of the lender/investor and/or service provider.
o Changes are valid for a 90-day “trial period”. If the borrower(s) comply with all terms during the 90-day trial period, the change will be extended for a minimum of 5 years.
o From Year 6, the rate may not increase by more than 1% per annum until the rate reaches the Freddie Mac Primary Mortgage Market Survey Rate on the day the change is made.

Since this article was intended as a “short” general summary of the “highlights”, I’ll stop here. There are additional terms and conditions which you can find at

Let’s all hope that this new initiative is more successful than the Hope for Homeowners Program (H4H) that started on October 1st, 2008. The following article was recently published by Time Magazine:

Class: F
The Plan: Hope for Homeowners was enacted Oct. 1 and was set to be the main foreclosure bailout plan from Congress, which allocated $300 billion to the effort. Proponents in Congress, like Massachusetts Rep. Barney Frank, said the program would allow hundreds of thousands of borrowers, perhaps millions, to refinance themselves into cheaper loans by reducing the amount owed, which put many homeowners at risk of default and more than her house was worth.

The Result: How many people did Hope for Homeowners save from foreclosure? Zero. In the three months since the program began, there have been 326 applications, but none of those people — not to mention the nearly 6 million homeowners who are estimated to face foreclosure in the next few years — have received a new mortgage or modification for those who have them. Additionally, none of the major mortgage lenders like Bank of America, Citigroup, and Wells Fargo have joined the loan reduction program — giving Hope for Homeowners little chance of succeeding any time soon. “Foreclosure is the problem we need to put a lot more effort into solving,” says Robert Scott of the Economic Policy Institute. “We need to undercut house prices, and stopping foreclosures is how you do that.”

Please note that this is my interpretation of the policy and all information should be independently verified. Finally, please remember…as this is a government program, all rules and policies are subject to change. Stay tuned… and make it a great day!