Home affordable refinance

The government finally revealed the details behind their 75 billion dollar aid package aimed at providing stability to the housing market. The government program is aimed at two areas of concern, home owners who may be facing the possibility of home foreclosure and home owners who owe more than the value of their home and would like to refinance their home mortgage.

The programs offer two different avenues to help these targets, refinancing and loan modification. Home owners who are behind on their home mortgage are likely to pursue the loan modification path. These home owners can attempt to modify their home loan with their existing mortgage servicer. Their are a number of requirements on these loan modifications including:

• The property must be a primary residence
• Loan must be guaranteed by Fannie Mae or Freddie Mac
• Borrower must be able to document their income
• New payment is based on a debt to income housing ratio of 31%
• The mortgage must be under $729,000
• The mortgage must have been originated prior to 2009

The program is not required to have lenders and servicers participate, as this is an elective procedure. Lenders are allowed to charge fees to restructure these home loans. The effective interest rate could be as low as 2% and would be fixed in for the next five years. There is the potential of a reduction in the principal balance owed on the home loan to borrowers who make payments on time.

Consumers who are not eligible to refinance their homes because the home value is higher than the value they owe on their home may look at refinancing their mortgage under the proposed program. The program will allow home owners whose loan to value is under 105% to refinance their mortgage. This part of the proposal is less clear as to how beneficial the results may be as in most of the hard hit areas with large drops in home values the loan to value ratios are above 125% in most situations.  The overall benefit of the program is being met with mixed reviews at best as most economists don’t believe that this will be aggressive enough to put a bottom to the foreclosure issues as their is no direct move to lower principal loan balances.