In March 2009, the federal government introduced the Making Home Affordable program. As the name implies, its purpose is to help struggling homeowners stay in their homes by giving them affordable, sustainable mortgages. There are two ways this can be accomplished – through loan modification or refinancing.

The loan modification program is for homeowners who are no longer able to make their monthly mortgage payments, whether they are current or have fallen behind. The refinance program is for homeowners that are current on their mortgage and want to reduce their interest rates, but have been unable to do so because their home’s value has dropped.

Loan Modification
Whether you are current on your mortgage loan, or you have already missed one or more payments, if you are no longer able to make your monthly payment, you may qualify for a loan modification to make it more affordable.

Under the Home Affordable Modification program, borrowers’ existing loans are modified so that the monthly mortgage payment does not exceed 31% of their gross income. Modification can include a reduction in the interest rate, extension of the repayment period, and deferred payment or even forgiveness of some the principal balance. The 31% guideline applies to the first mortgage. If a borrower has both a first and second mortgage and receives a modification on the first mortgage, he or she will automatically receive a modification on the second mortgage if the lender is participating in the program.

In order for you to be eligible for the program:

• The house that secures the mortgage must be your primary residence and contain no more than four units.

• The amount you owe on your first mortgage must be equal to or less than $729,750 (for a single family home).

• Your current mortgage payment (including taxes and insurance) must be more than 31% of your gross income and unaffordable due to a recent change in circumstances, such as a reduction in income, mortgage payment increase, or increase in medical or other essential expenses.

• The loan must have been taken out before January 1, 2009.

Unlike the refinance program described below, your loan does not need to be owned or securitized by Fannie Mae or Freddie Mac in order for you to participate. It’s up to individual lenders to determine if they are participating in this program. If you are interested in the Home Affordable Modification program, you should contact your loan servicer to see if they are participating. If so, they will tell you what documentation you need to submit to start the application process. Generally, this will include pay stubs and tax returns to document your income, verification of your assets, and an accounting of all of your debt.

You and your servicer will complete the necessary steps to determine whether the modification program is appropriate for you. This will include assessing your financial situation, and you may be required to complete financial counseling. Once approved, they will put you on a trial modification for three months at the new interest rate and payment level. During this time period, the servicer must determine if you are eligible for a Hope for Homeowners refinance. (This is different from the refinance program discussed below). Under Hope for Homeowners, your mortgage is refinanced to a fixed-rate loan for no greater than 90% of your home’s current market value. If you are not eligible for Hope for Homeowners but successfully make the payments under the trial period, your servicer will execute a permanent modification agreement that will lower your interest rate to a fixed rate for five years and then is capped at a low rate for the remaining life of the loan.

The program expires on December 31, 2012.

Refinancing
When interest rates drop, many borrowers want to refinance to save money. Refinancing is also an attractive option for borrowers with adjustable-rate mortgages that are about to reset. Unfortunately, for borrowers whose home value has dropped significantly, getting approved for a new mortgage can be fairly difficult. The Home Affordable Refinance program allows borrowers whose loan to value ratio (loan balance compared to the market value of the home) is too high to be approved for a conventional mortgage refinance. The goal of this refinance program is to reduce interest rates to ensure the payments are affordable today and sustainable over the life of the loan.

The eligibility requirements for the program include:

• The house that secures the mortgage must be your primary residence and contain no more than four units.

• Your loan must be owned or securitized by Fannie Mae or Freddie Mac. (Not sure who owns your loan? You can find out if your loan is owned by Fannie Mae by visiting www.fanniemae.com/loanlookup or calling 1-800-7FANNIE. For Freddie Mac you can visit www.freddiemac.com/mymortgage or call 1-800-FREDDIE.)

• You must be current with your mortgage payments. (Current is defined as not having been more than thirty days late in the past twelve months.)

• The new mortgage must be affordable and an improvement over the old loan (e.g. lower interest rate, fixed-rate instead of adjustable).

• The new mortgage cannot exceed 105% of your home’s market value.

To participate in the refinance program, contact your lender or servicer to begin the application process. You will need to provide information and documentation about your income and debts. If your mortgage is with Fannie Mae, you can apply for a Home Affordable Refinance loan with any Fannie Mae approved lender.

The program expires on June 30, 2012.

Don’t Fall Prey to Foreclosure Rescue Scams
There are no fees for assistance with or information regarding the Making Home Affordable program. Do not pay fees to any person or organization that offers to provide counseling or modification for a fee. Some scammers are even convincing consumers to sign over the deed to their property. Work closely with your mortgage company and always check with them before signing away your home or directing your mortgage payments to any new location.

For further information on the Making Home Affordable program, visit www.makinghomeaffordable.gov. For further information on this and other elements of the financial stability program, visit www.financialstability.gov.