President Obama unveiled the basics of his administration's foreclosure prevention plan on Feb. 18. The $75 billion Homeowner Affordability and Stability Plan was widely anticipated because it was expected to solve one of the biggest problems underlying the "mortgage meltdown" -- lenders' unwillingness to renegotiate mortgage loans with homeowners who are not yet behind in payments, or whose loans have been securitized. Details will be announced March 4, but CNN Money ran an article the next day seeking to help homeowners decide whether they'll benefit from the plan.
In short, the plan allows refinancing and mortgage loan modifications for a greater number of homeowners -- but only if they qualify. For starters, refinancing help is only available for people who have loans owned or guaranteed by Fannie Mae or Freddie Mac. And there are two other conditions that disqualify many Orange County homeowners. One is that "jumbo" loans are not eligible for refi. A loan made in 2007 or before is considered "jumbo" if it's $417,000 or more; that ceiling was raised in 2008 and again this year, but applies only to loans made during those years. And if the value of your home has fallen so low that your debt exceeds the home's value by more than 5% -- that is, if you're "underwater" by more than 5% -- you also would not be eligible for refinancing help.
However, you my still be eligible for help negotiating a modification of the terms of your loan. Qualifying homeowners include anyone who is in default or at risk of default (but still current), including people who are underwater and those with high mortgage debt compared to their income. These homeowners can have their payments lowered to 31% of their before-tax income for five years, through a reduction in their interest rates or principal owed. If they make all of their payments on time, they're also eligible for $1,000 a year in incentive payments for each of the five years. However, the program is not available to real estate investors who don't live in the home, people who were dishonest in their loan applications or people for whom foreclosure would still be cheaper.
Unfortunately, this plan is unable to help many homeowners here in Southern California get refinancing, even those whose loans are held by Fannie Mae or Freddie Mac. Because median home values were above $700,000 in Orange County just a few years ago -- and have dropped so much since -- literally thousands of OC homeowners have jumbo loans or are underwater by amounts that exceed the 5% threshold. Homeowners may still be able to get a loan modification, but that plan explicitly excludes people who would be cheaper to foreclose on than help. And it doesn't help people who are unable to afford any payment at the moment because of a catastrophic financial change like a layoff.
Nonetheless, for qualifying homeowners, the plan could be a badly needed lifeline, especially for those frustrated by banks' unwillingness to negotiate before they were in default. At Howard Law LLP, we have an active mortgage loan renegotiation practice, serving people not covered by the Obama foreclosure plan as well as those who may qualify. Our Anaheim mortgage loan modification attorneys have successfully renegotiated the terms of mortgages to levels our clients can afford, including non-traditional or "subprime" mortgages. If you know you need the help of an experienced negotiator to modify your home loan, you can contact Howard Law online today or call 1-800-872-5925 to set up a free, confidential consultation.