On Mar. 4 the Treasury Dept. released final guidelines for banks and homeowners looking to participate in a new $75 billion program called “Making Home Affordable.” Among the new details of the program, which is now up and running: cash payments for mortgage holders who choose not to foreclose on borrowers and new rates as low as 2% for borrowers. The Obama Administration also indicated it will seek changes in bankruptcy laws to allow judges to restructure home loans in court.

“Two weeks ago the President laid out a clear path forward to helping up to 9 million families restructure or refinance their mortgages,” said Treasury Secretary Tim Geithner in a prepared statement. “Today we are providing servicers with the details they need to begin helping eligible borrowers.”

The mortgage rescue plan, originally announced by Obama in Phoenix on Feb. 18, aims to stem the rising tide of foreclosures by streamlining the way troubled loans are renegotiated. The plan addresses some of the major obstacles homeowners have faced when trying to avoid foreclosure.

Cash Incentive
Mortgage servicers — the companies that process payments on behalf of the ultimate owners of the loans — will now have a financial incentive to change the terms. They’ll get paid $1,000 up front for every loan modification. If the borrower stays current on the loan, the servicers will get additional $1,000 payment each year for three years.

Because the government wants people to stay current in their loan payments whether they are seeking to renegotiate or not, mortgage owners and servicers are being encouraged to reach new terms with borrowers before they default. Mortgage owners who reach such agreements will get paid $1,500; mortgage servicers will get an additional $500. Servicers are also being asked to negotiate with the holders of second mortgages and get them to fully extinguish their loans. The servicer will get an additional $250 for that. Because home prices have fallen so dramatically, many second mortgages are now worthless.

The Treasury is making $10 billion available to pay mortgage owners who renegotiate loans now, even if there is a likelihood the home will decline further in price. If the loan modifications don’t work and the borrower still defaults, mortgage owners can receive cash payments linked to declines in a home price index.

One of the biggest changes in the new program is the introduction of a simple formula for calculating monthly payments. In the past, banks tried to help borrowers who had fallen behind by tacking missed payments onto the principal of the loan. That did not reduce the monthly payments. More than 40% of all borrowers who get put in such payment plans end up defaulting again, according to the U.S. Office of Thrift Supervision. Under the new program, mortgages will be restructured so that home payments account for no more than 31% of the borrower’s gross monthly income. All debt payments, including car loans and credit cards, will be no more than 55% of pretax income.

Drowning in Negative Equity
Borrowers who are “underwater” — that is, they owe more than their house is worth — will also be allowed to refinance so long as their first mortgage does not exceed 105% of their home’s value. Previously only borrowers with at least 20% equity in their homes could refinance. Still, the program is not expected to help many homeowners whose homes are now worth far less than the purchase price. A report released on Mar. 4 by LoanPerformance, a mortgage data company, says one in five U.S. mortgage holders were saddled with negative equity at the end of 2008.

Borrowers seeking help in negotiating with lenders are being encouraged to use counselors approved by the Housing & Urban Development Dept. [HUD]. These nonprofit firms, such as NeighborWorks America , the Neighborhood Assistance Corp. of America , Acorn, Catholic Charities, and the Urban League, are paid by the federal government to run programs for homeowners in trouble. They typically contract with hundreds of other counseling services across the country, both to negotiate new loan terms and counsel borrowers on overall household budgeting. Their services are free. The involvement of Acorn, which is politically active, has been a bone of contention for conservative critics of the Obama mortgage bailout.

“If you’re paying for foreclosure prevention services, you shouldn’t be,” says Douglas Robinson, a spokesman for NeighborWorks.

The Obama plan will not address all homeowners in trouble. Only loans insured or owned by Fannie Mae and Freddie Mac will be part of the program. Homeowners need to call their lender to find out if that is the case with their loan. Investment properties and second homes will not qualify. Borrowers who took out “jumbo” loans over the new limit of $720,000 will not qualify. The real estate Web site Zillow.com estimates that only about 25% of borrowers have home values high enough to support refinancing under the new program terms. A Treasury-run Web site will have more information about the program.

Out-of-Luck Jobless
The plan also doesn’t address borrowers who have no income, such as those who have recently been laid off. Citigroup announced on Mar. 3 that it would lower payments to $500 a month for three months for borrowers who have lost their homes. Other banks may follow.

Meanwhile, the House of Representatives is expected to vote on Mar. 5 on legislation that would allow judges to restructure mortgages in bankruptcy court. Republicans and the banking industry had opposed such moves, fearing a wave of filings that would allow homeowners to easily void contracts. Under a compromise hatched this week by Democratic leadership, judges could approve such “cram-downs” only if the homeowner had first been offered and made an effort at paying under a loan modification structured along the new guidelines.

Don’t hesitate…call Pearl for answers to your questions.

Pearl Ahlquist, Short Sale Specialist

Saving One Home Owner at a time.

Realty First

(916) 708-3851

homes4keep@yahoo.com

How Will Foreclosure Effect Credit Scores?
The amount of damage to a credit score caused by foreclosure, deed in lieu or a short sale during 2008 and 2009 may be mitigated by the slower economic times, say some credit and legal experts.

FICO may have to adjust its credit scores to lessen the impact of a foreclosure in the last two years, says Todd J. Zywicki, a professor of law at George Mason University.

”It just seems obvious that a foreclosure in 2008 or 2009 doesn’t have as much information value as a foreclosure five years ago,” he says. ”To the extent that foreclosure doesn’t predict future behavior as much as it did in the past, you’d expect that the FICO algorithm would change to adjust for that.”

One of the country’s largest credit unions Golden 1 has already figured out a way to lend to people with a foreclosure on their record by offering a mortgage repair loan specifically for those who have lost a home to foreclosure and who want to buy a new one.

BECU, another large credit union based in Washington State, is about to present a program to fellow lenders, ”How to Lend to the Newly Credit Impaired.”

What will we do?

Credit is not being effected as bad as they are predicting.

For details call 916-708-3851 

Scammers Target Troubled Borrowers
Scam artists are proliferating, attempting to make money off troubled borrowers interested in taking advantage of President Barack Obama’s foreclosure-prevention plan.

The firms charge fees for what they tell borrowers will be quick and effective negotiations with banks. In most cases, the firms take the home owners’ money – often more than $1,000 – and do nothing.

The Federal Reserve recently issued this advice for people seeking to modify their mortgages:

• Work only with HUD-approved nonprofit counselors. (See www.hud.gov)
• Don’t agree to pay a fee before you are provided with the promised service.
• Beware of people offering “guaranteed” results.
• Don’t sign blank forms or documents you haven’t read.

Realtor Insider DC News and Events Report
The Obama Housing Plan: Making Home Affordable

On February 18, 2009, President Obama announced his housing plan designed to help 7 to 9 million families avoid foreclosure by refinancing or modifying their mortgages. The plan also strengthens the federal commitment to Fannie Mae and Freddie Mac (the government sponsored enterprises, or GSEs).

On March 4, 2009, the administration released detailed guidance on the Making Home Affordable Program.

Here are the key elements of the Obama plan:

1. The Home Affordable Refinance Program. Under this program, eligible borrowers may refinance loans that Fannie Mae or Freddie Mac (the government sponsored enterprises, or GSEs) own or guarantee. The program can help homeowner-occupants who are current in making loan payments and have loan-to-value ratios (LTVs) above 80 percent but not more than 105 percent. Cash out refinancings are not permitted. The program ends in June 2010.

2. The Home Affordable Modification Program. This is a $75 billion program with lender, servicer, investor, and borrower incentives to make it work. The program is limited to homeowner-occupants who are at risk of default or already in default and who have loans at or below the maximum GSE conforming loan limit of $729,750 (or higher for 2-, 3-, and 4-unit properties). Loan modifications under the program may be made until December 31, 2012.

3. More Support for the GSEs. President Obama also announced more support for the GSEs, including doubling of potential Treasury investment from $100 billion to $200 billion for each GSE, to maintain their positive net worth. The plan also raises the cap on mortgages that the GSEs may hold in their portfolios by $50 billion to $900 billion.

For an explanation of this please email me at .

homes4keep@yahoo.com