Will Obama's 'Making Home Affordable Plan' Help You?

By Christy Brock

President Obama's Making Home Affordable Plan may benefit up to 9 million homeowners, enabling them to either refinance their current mortgage or do a loan modification. Whether or not you will be eligible is in part determined by your particular situation but also whether or not your lender opts into the program. Most observers believe that the major lenders will opt into the program sometime within the next few months. Here's how to prepare now so you are ready:

The first level of help is to refinance your existing mortgage. You are eligible to refinance under the plan if you can answer YES to these four questions:

1. Is this your primary residence?
2. Are you current on your mortgage payments?
3. Is the current value of your home greater than or equal to the amount you owe on your first mortgage?
4. Do you have a Fannie Mae or Freddie Mac loan?

If you can answer YES to all 4 of the above questions, congratulations! The next step for you is to gather your paperwork to create your Basic Financial Package* and contact your lender regarding the Home Affordable Refinance application process. You get to keep your home and the lender keeps a good loan on their books.

If you answered NO to any one of the above questions, then you may be eligible for a loan modification. Here's your test:

1. Is this your primary residence?
2. Is the amount you owe on your first mortgage equal to or less than $729,750?
3. Are you having trouble paying your mortgage?
4. Did you get your current mortgage before January 1, 2009?

If you can answer YES to all 4 of the above questions, congratulations! The next step for you is to gather your paperwork to create your Financial Plus Package* and contact your lender regarding the Home Affordable Modification application process. Whether or not the lender will approve you for a Modification will be in part based on your ability to answer yes to the above questions. The lender's decision will also be based on your passing the Net Present Value (NPV) test. If loan modification is approved, you get to keep your home and the lender has worked out a scenario that is more beneficial than if you go into foreclosure.

If, like many homeowners in the Bay Area, you lost your job or you tried to get a Home Affordable Refinance or Modification and were not eligible before, the government may help compensate lenders for allowing a short sale to take place.

What is a short sale and how can it help you? A short sale is when you owe more than your home is worth but the lender agrees to take less to settle the account. For example, if you owe $500,000 but your home's current value is $350,000. To sell your home it would normally cost you approximately $26,000 in fees which means you would need to sell your home for $526,000 to walk away free and clear. In this case, you are short $176,250. What happens to that balance will depend on your particular situation, but in many cases, the Mortgage Forgiveness Debt Relief Act of 2007 will kick in to absolve you from the debt. A tax professional will be able to help you determine your particular situation in conjunction with a Certified Short Sale Professional who will help to negotiate with your lender. If this is your path, then gather your paperwork to create a Financial Plus Package* and contact a Certified Short Sale Professional. Believe it or not, this is a win-win scenario also. The homeowner wins by avoiding a foreclosure on his or her credit. For many people, it is possible to rent a similar home in the same area for half the cost that was being paid for homeownership. The rental period can be considered time to resolve adverse credit issues and get out of debt. After a year or two, while prices are still low, purchasing may be a possibility! The lender wins because the costs associated with foreclosure were avoided. Before you run up your credit card balances and run through your savings, talk to a Professional and learn about your options. The bottom line is that help is available to you!

 * Financial Package

1. Basic Package: Pay stubs from the past 30 days; 2008 tax return; 2 months bank statements from all checking, savings, money market accounts; Most recent statement from your other asset accounts such as 401k, IRA, 403b, stock portfolio, etc.; Most recent statements from first and second (if applicable) mortgage; Prepare a list of all debts with balance and monthly payment.
2. Plus Package:This package contains all of the documents from the Basic Package with the addition of the following: Hardship letter – this is a letter to explain your situation. Hand write a personal letter to the lender to explain why you are currently or expect in the near future to have trouble paying your mortgage. This letter should be less than a page and be very specific. If your income has decreased, specify by how much.

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