mortgage

Rules for mortgage modification set

What about refinancing?

The Obama administration predicts that 3 million to 4 million people will seek mortgage modifications. It predicts that even more people -- 4 million to 5 million -- will want to take advantage of a refinancing program for people who owe between 80 percent and 105 percent of the current value of their homes, and who have loans owned or guaranteed by Fannie Mae or Freddie Mac.

Mortgage lenders and brokers eagerly awaited details of the refinancing part of the Making Home Affordable program. No details were forthcoming.

The closest thing to details came from the FinancialStability.gov Web site, which implied strongly that the refinancing program will be available only to people who owe roughly what their house is worth now. In other words, it won't help someone who got a mortgage for 90 percent of the home's purchase price, then watched the home's value drop 30 percent. You can use Bankrate's handy calculator to find out how your home's value stacks up against your mortgage loan.

The Federal Housing Administration allows a "streamline refinance" program for people in that situation. If they've been making their house payments on time, they can refinance without having the house re-appraised. Mortgage lenders hoped that the Making Home Affordable refi program would have a similar streamline refinance program, so people would be able to refinance despite being deeply underwater.

How much will the average payment be?
For people who qualify, the mortgage modification would result in house payments that don't exceed 31 percent of monthly before-tax income. The nation's median household income in 2007 was $50,233. A household with that income would end up with a mortgage payment of $1,298.

"A commonsense approach would be if the homeowner has made payments as agreed for the last 12 months, and can document the income, let them lower the payments," says Dan Green, loan officer for Mobium Mortgage in Cincinnati.

By excluding deeply underwater borrowers from the refinancing program, the federal government essentially is telling borrowers in places where prices have fallen most -- California, Florida, Nevada and Arizona -- that they'll just have to suck it up.

"It's a firebreak," says one observer -- save some homeowners, but let others tumble.

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