Making Sense of the Economic Recovery Act and How it Applies to Home Mortgage Rescues

Newly passed legislation about home mortgage modification seems to be the talk around the water cooler lately. But figuring out just how this valuable legislation can affect you as a homeowner and the interest and terms of your home mortgage is difficult. Basically, the Obama plan is centered on two groups of homeowners: the first is those who are facing foreclosure due to missing payments and default, the second is those homeowners who cannot refinance to a better rate due to falling prices in the housing market.

For the first mentioned group, those who are facing foreclosure, the government offers incentives to lenders in order to secure mortgage modification on their existing mortgage. In doing so, the homeowner can reduce their monthly payment requirement enabling them to stay current on their mortgage and avoid foreclosure. For homeowners who are current on their mortgage but cannot refinance because the value of their home has gone down drastically in their area, the Obama mortgage rescue plan can allow them to refinance their mortgages to better terms that include smaller monthly payments. These mortgages are known as underwater mortgages.

Modifying Your Mortgage Under The Obama Rescue Plan

For mortgage modification, the homeowner must have taken out a mortgage on the home prior to January 1, 2009 and the mortgage cannot be a second mortgage (must be their primary mortgage). The principle of the mortgage must be less than $729,500 and the homeowner must actually live in the home that qualifies for mortgage modification under the Obama mortgage rescue plan.

Additionally, the homeowner must document their financial situation fully via income tax return statements and pay documentation in the form of paystubs or pay statements. The homeowner must also prepare a financial hardship statement that details how and why they fell into financial difficulty that requires that their mortgage be modified. If the borrower has a total household debt that is greater than fifty-five percent of their income, the borrower must agree to go for credit counseling. The homeowner does not have to be late on their mortgage payment to qualify for mortgage modification.

Once these qualifications are met, the mortgage lender can determine the amount of the new monthly payment in order to make sure that it is no more than 31% of your pre-tax (gross) monthly income and the interest rate can be as little as 2%. This provides significant savings that can keep the family in the home and allow the home to be its most affordable for them in the future.

Refinancing Your Mortgage Under The Obama Rescue Plan

For mortgage refinancing, the homeowner must live in the home and it must be their primary residence. The mortgage must be owned by either Freddie Mac or Fannie Mae (check with your lender, many mortgages are owned by these two huge entities; you may be unaware of it). The borrower must show that they have enough income coming into to sufficiently handle the mortgage payment, and borrowers cannot take cash out of the mortgage in order to pay on other debts. Also, the mortgage cannot be written for more than 105% of the current fair market value of the home. The mortgage can be refinanced under this option to a fixed 15 or fixed 30 year rate.

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