Under the new Homeowner Affordability and Stability Plan, millions of homeowners will now be able to take advantage of the Home Affordable Modification Program and the Home Affordable Refinance Program. This plan is part of the latest Obama plan to stimulate the economy and the housing market to help homeowners avoid foreclosure.

The Home Affordable Modification Program
The new guidelines released by the Federal government for loan modifications are currently effective.  The Home Affordable Modification is designed to help the millions of at risk homeowners avoid foreclosure by modifying their loans and reducing their monthly mortgage payments to an affordable payment. While the Treasury Department has announced that the new guidelines are applicable for FHA, Fannie Mae and Freddie Mac, it is hoped by financial industry experts that the new guidelines will soon become industry standard guidelines for all affordable loan modifications.

New Loan Modification Guidelines
The following are highlights of the new mortgage modification guidelines:

• Only loans that were originated on or before January 1, 2009 will be eligible.
• Only owner occupied first lien loans with unpaid principal balances up to $729,750 are eligible. There are higher limits allowed for owner-occupied properties with 2-4 units. No investor owned properties, vacant properties or condemned properties are eligible under the program.
• Borrowers must document their income by showing their last two paycheck stubs, their recent bank statement, their most recent income tax returns and a hardship letter explaining their current financial hardship and why they believe they can no longer afford    their mortgage payments.
• Lenders and loan servicers will receive incentives to modify the loans of at risk borrowers who are current in the mortgage payments, but who are at risk of defaulting.
• The new guidelines are in effect for mortgage modifications starting currently through December 31, 2012. Loans can only be modified once under this new program.
• Participating servicers will be required to service all eligible loans unless their contract prohibits this.
• The servicer must conduct a net present value of cash flow test with and without a loan modification.  If the net present value of the expected cash flow is greater with a modification, then the servicer must issue a modification unless the borrower has committed fraud or some other illegal act.
• There is a sequence of events pertaining to the loan modification that must be followed: First the interest rate must be reduced to a rate floor of 2%, then the term can be extended to a maximum term of 40 years, and if necessary a forbearance of principal or refinancing may be offered instead of the mortgage modification.
• All loan servicers must enter into agreements with the Treasury Department before December 31, 2009.

The Home Affordable Refinance Program

• The new affordable refinance program allows homeowners with debt that exceeds their home value by 5% to be eligible for refinancing.
• There are no prepayment penalties either.
• The loan must be backed by Fannie Mae or Freddie Mac.

The government estimates that up to 5 million homeowners could be eligible.
Not Eligible

• Homeowners whose home values declined severely under 5% are not eligible.
• Jumbo mortgages, which exceed $417,000 are not eligible

Borrowers must show they have enough income to make their new mortgage payments.