Keely's Broker Blog

Q&A: Who Qualifies for Housing Bailout?

Do I have to fall behind on my loan payments to be eligible for a loan modification?
No, but borrowers do have to demonstrate that they are in danger of staying current on their mortgage payments and that they don’t have enough income to make their mortgage payments. That could help borrowers whose interest rates are resetting or who have lost their jobs.

Who is eligible for a loan modification?
The program is open only to primary residences and homeowners who are paying more than 31% of their monthly gross income on mortgage payments. Jumbo loans, which exceed Fannie or Freddie loan limits, are not eligible. Final eligibility will be determined by your mortgage lender. (Some ineligible Americans are riled up.)

Can I modify a second mortgage?
No. Only first mortgages are eligible.

Is my lender required to participate?
No. Lenders participate on a voluntary basis, but the government is providing subsidies to encourage lenders and servicers to modify loans. Mortgage servicers, for example, receive $1,000 upfront for each loan modification and can receive an additional $1,000 annually for three years if the borrower stays current on the loan. (Plan is heavy on incentives to modify loans.)

Will the government reduce the size of my loan?
For those eligible for the government-subsidized loan modification, borrowers can receive a reduction in loan principal of $1,000 annually for five years if they stay current on their modified loan.

Borrowers who aren’t able to qualify for a loan modification because they aren’t in danger of defaulting on their loans may still be able to refinance their loans to take advantage of low interest rates.

Can I refinance my loan if I owe more than my property is worth?
Borrowers with little or no equity can refinance into a 30-year or 15-year fixed-rate mortgage at current rates as long as the amount owed on a first mortgage does not exceed 105% of their home’s current value. The refinance program is only open to borrowers with conforming loans that are owned or guaranteed by Fannie Mae or Freddie Mac. Borrowers must be able to demonstrate that they are current on mortgage payments and that they will be able to meet the new payment terms on the first mortgage.

How do I know if my mortgage is owned or guaranteed by Fannie or Freddie?
The White House will release full eligibility details on March 4, when the program begins, and it is recommending that borrowers contact their lender at that time to see if their mortgage is owned or guaranteed by Fannie or Freddie.

What happens if I have a second mortgage? Can I still refinance?
Borrowers with more than one mortgage may be eligible to refinance as long as they owe less than 105% the value of their property on the first mortgage. The second mortgage holder will have to agree to remain in a second position on the home.

Are jumbo loan holders eligible?

No. Only those who have mortgages owned or guaranteed by Fannie or Freddie can apply, and the government-held mortgage companies don’t guarantee jumbo loans.

Do You Qualify for a Mortgage Bailout?

President Obama and Treasury Secretary Geithner are spending $75 billion to help homeowners stay in their homes. Is there something in there for you?

The quickest answer can be found by looking at how much you earn, not how much you owe. If your total monthly home payments (interest, principal and taxes) are greater than 31% of your monthly, pre-tax income you may qualify. Even if your home is worth less today than what you owe, you may be able to refinance.

What if your payments aren’t higher than 31% of your income? The Administration has also proposed a way to help homeowners who aren’t at risk of default refinance, even if they owe more than what their house is worth. Normally it’s difficult to refinance if you owe more than 80% of what your home is worth. But under new rules you may be able to refinance up to 105% of the home’s value. Not all mortgages will be eligible. They have to be owned or insured by Fannie Mae, Freddie Mac or one of the other government-backed programs. High-value, “jumbo” loans may not meet the test.

The new loans apply to homeowners who are current in their payments.  The complete eligibility guidelines will be available March 4th and I'll be here to disseminate them!

Homebuyer Tax Credit

First and foremost, the tax credit, money back in your pocket for buying a place, is worded as follows:

Homebuyer Tax Credit. The bill provides for a $8,000 tax credit that would be available to first-time home buyers (those who haven't owned in at least three years) for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009. The credit does not require repayment for buyers who hold onto their property for at least three years. Most of the mechanics of the credit will be the same as under the 2008 rules: the credit will be claimed on a tax return to reduce the purchaser's income tax liability. If any credit amount remains unused, then the unused amount will be refunded as a check to the purchaser.