Will The Latest Housing Rescue Plan Help You?

Re-Print from WSJ - MARCH 5, 2009

Mortgage-Assistance Program Offers Desperate Treatment Depending on Goals and Circumstances, By NICK TIMIRAOS

New rules issued by the White House on Wednesday clarify who can take advantage of the latest round of federal efforts to head off foreclosure. President Barack Obama announced his housing stability plan two weeks ago, promising the most far-reaching effort yet by the government to help large numbers of at-risk borrowers. The program has two main components.

One provision will allow diligent borrowers who are current on their mortgage payments but have little or no equity in their homes to refinance their first mortgage to take advantage of current interest rates, which have fallen to near record lows. That is designed to allow responsible borrowers -- mainly those who have been hurt by falling home prices -- to benefit from the current climate. Lenders won't refinance borrowers who don't have equity in their homes.

The second component involves modifying mortgages loans to lower monthly payments to 31% of the borrowers' gross monthly income, mainly by reducing the interest rate on the loan. This effort would target borrowers who are falling behind on their mortgage payments or who are in danger of falling behind. The government will provide financial
incentives to lenders and mortgage servicing companies to encourage them to offer the reduced payment plans, which last for five years. But as with any broad effort, homeowners are treated unevenly in the programs. The refinance provision is open only to borrowers who have loans that are owned by Fannie Mae or Freddie Mac.

That excludes large numbers of borrowers with subprime and other exotic mortgages sold to investors; and borrowers with so-called "jumbo" loans that are too large for government backing. Those groups will be eligible for the modification part of the plan, but only for loans up to $729,750. Borrowers who owe more than 105% of the current value of their home also won't be eligible for refinancing. That means that fewer borrowers in the nation's most over-heated housing markets, including California and Florida, and in some of the most depressed market in the Midwest can take advantage of the program. "Most of the people we serve are too far underwater to take advantage of this," says Dan Elsea, a mortgage broker in Detroit. Nationally, 25% of mortgage holders have conforming loans that are within the 80% to 105% loan-to-value ratio needed to qualify for the program, according to real estate Web site Zillow.com. But that number falls in certain highcost housing markets that have seen big price declines. In Los Angeles, for example, just 9% of mortgage holders are eligible to refinance, while 8% of conforming borrowers are too far underwater, according to Zillow.com.