Making Home Affordable for Homeowners

Last Wednesday, the US Treasury announced the first of six banks that will be participating in the Making Home Affordable home loan modification program.

Listed among these first participants are three of the country’s largest financial institutions including:

• JPMorgan Chase (JPM, Fortune 500), which will get up to $3.6 billion in subsidy and incentive payments
• Wells Fargo (WFC, Fortune 500), set to receive $2.9 billion
• Citigroup (C, Fortune 500), which will get $2 billion

Other financial institutions participating in this home loan modification program are GMAC Mortgage, $633 million; Saxon Mortgage Services, $407 million; and Select Portfolio Servicing, $376 million.

Obama’s Home Loan Modification Program – The Basics

The modification plan requires that participating mortgage servicers reduce borrower interest rates so that the their monthly payment reflects no more than 38% of their pre-tax income.  Under this arrangement, the government will then pay the balance to mortgage servicers to bring payments down to 31% of income.

Mortgage servicers can also lower borrower loan balances to achieve affordability levels.  Under this option, the government will share in the cost, up to the amount the servicer would have received if it had reduced the interest rates.

What Home Loans Are Eligible for Home Loan Modification?

At present, only home loans where the cost of foreclosure would be more than the cost of modification qualify. Also, Treasury won’t provide subsidies to reduce rates to levels below 2%.

In addition to subsidizing the interest rates, servicers will use the Treasury funding to pay for incentives given to themselves, investors, and homeowners.

Mortgage servicers will receive $1,000 for each modification they peform and another $1,000 a year for three years so long s the borrower remains current on their payments.  This program also provides $500 to servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrower falls behind.

In the meantime, borrowers will receive up to $1,000 a year for as many as five years if they keep up with payments. The funds will be used to reduce their principal loan amount.

Note: The Treasury Department based these amounts on public data about the mortgages currently handled by loan servicing companies.  Though the program mandates that servicers modify all loans that meet the requirements, the department believes that loan servicers will have enough financial support to cover all applications from troubled borrowers.

Related articles by Zemanta

• Six Banks to Receive up to $9.9 Billion for Mortgage Modifications (calculatedriskblog.com)
• Riders on the storm (money.cnn.com)

I hope you found this post useful! As always, if you or anyone you know is in need of a local Florida mortgage loan originator, I’m your guy. Call me at 888-859-7418 or apply online for your Florida mortgage. We’ll keep you posted and let you know when it’s time to pull the trigger!

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