Nevada has been hit hard by our nation’s housing crisis, so I am acutely aware of the havoc the foreclosures wreak not only on individual homeowners, but on entire communities and local governments. Stemming the tide of foreclosures is key to our nation’s economic recovery. This crisis requires a comprehensive approach that provides solutions for as many homeowners as possible and incentives to ensure that lenders work to stabilize the housing market one home at a time. I am pleased that the Obama Administration recently announced a Homeowner Affordability and Stability Plan to do just that.

Millions of responsible homeowners are unable to take of historically low mortgage rates because they have lost value in their homes as a result of the downturn in the housing market. The Obama Administration’s new program will help those homeowners that took out conforming loans owned or guaranteed by Fannie Mae and Freddie Mac to refinance into more affordable rates.

Millions more struggle to stay current on their mortgage payments in the face of depleted household income. The Administration has proposed a comprehensive strategy to help at-risk homeowners by implementing the following measures:

• Establishing loan modifications that create a shared effort between the government and the lender to reduce the borrower’s monthly mortgage payment to as low as 31 percent and no more than 38 percent;
• Requiring that institutions that receive government assistance follow clear loan modification guidelines for preventable foreclosures;
• Allowing judicial modifications of home mortgages during bankruptcy for borrowers with no other option;
• Providing “Pay for Success” incentives for services to perform loan modifications, including an up-front fee of $1,000 for each eligible modification and additional fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years;
• Providing incentives for borrowers to receive a monthly balance reduction payment as long as they stay current on the loan, up to $1,000 per year for five years;
• Encouraging servicers to reach borrowers early with an incentive payments of $500 to servicers and $1,500 to mortgage holders if they modify loans before at-risk borrowers fall behind in payments; and
• Allocating $1.5 billion to assist renters displaced by foreclosure and $2 billion in Neighborhood Stabilization Funds for communities hit hardest by foreclosures.

The Homeowner Affordability and Stability Plan will also strengthen confidence in Fannie Mae and Freddie Mac by increasing the Treasury Departments funding commitment to these institutions. This will help stabilize the housing market and keep mortgage rates low. The Administration will also work with Fannie and Freddie to support state housing finance agencies serving homebuyers. This initiative will help millions of families maintain the American Dream of homeownership.

Borrowers Who Are Current on Their Mortgage:

Eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan.   Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.  To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible to be refinanced, you should contact your mortgage lender.

Do homeowners qualify to refinance if they owe more than the property is worth?

Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property.   For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify.  The current value of your property will be determined after you apply to refinance.

Do homeowners still qualify to refinance if they have both a first and second mortgage?

As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan.  Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage.  

Will refinancing lower monthly payments?

The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan.  When you submit a loan application, your lender will give you a "Good Faith Estimate" that includes your new interest rate, mortgage payment and the amount that you will pay over the life of the loan.  Compare this to your current loan terms.  If it is not an improvement, a refinancing may not be right for you.

What are the interest rate and other terms of this refinance offer?

The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment.  All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate.  The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender.  Interest rates may vary across lenders and over time as market rates adjust.  The refinanced loans will have no prepayment penalties or balloon notes.  

Will refinancing reduce the amount owed on the loan?

No.  The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans.  Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe.  However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.

What should homeowners do to apply?

You should gather the information that you will need to apply and contact your lender.  This includes:

• information about the gross monthly income of all borrowers,  including your most recent pay stubs if you receive them or documentation of income you receive from other sources
• your most recent income tax return
• information about any second mortgage on the house
• payments on each of your credit cards if you are carrying balances from month to month, and
• payments on other loans such as student loans and car loans.
  

Borrowers Who Are at Risk of Foreclosure:

The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current.  By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

Do homeowners need to be behind on their mortgage payments to be eligible for a modification?  

No.  Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default.  This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.    

How do homeowners know if they qualify for a payment reduction?

In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits.

If a homeowner does not live in the house that secures the mortgage they’d like to modify, is this mortgage eligible for the Homeowner Affordability and Stability Plan?

No.  For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible.  If you used to live in the home but you moved out, the mortgage is not eligible.  Only the first mortgage on your primary residence is eligible.  Mortgages on 2, 3 and 4 unit properties are also eligible as long as you live in one unit as your primary residence.

If homeowners owe more than their house is worth, will the Homeowner Affordability and Stability Plan reduce what owe?

The primary objective of the Homeowner Affordability and Stability Plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford.  Lenders are likely to lower payments mainly by reducing loan interest rates.  However, the program offers incentives for principal reductions and at your lender’s discretion modifications may include upfront reductions of loan principal.

Are lenders required to modify  loans?

No.  Servicers will receive “pay for success” fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.  To encourage borrowers who work hard to retain homeownership, the Homeowner Affordability and Stability Plan provides incentive payments as a borrower makes timely payments on the modified loan.   The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt.  Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.

What are the costs associated with a loan modification?

There is no cost to borrowers for a modification under the Homeowner Affordability and Stability Plan.  

Can homeowners that are working with their lender /housing counselor on a loan workout still be considered for the Homeowner Affordability and Stability Plan?

Ask your lender or counselor to be considered under the Homeowner Affordability and Stability Plan.

How do homeowners apply for a modification under the Homeowner Affordability and Stability Plan?

You may not need to do anything at this time.  Most mortgage lenders will evaluate loans in their portfolio to identify borrowers who may meet the eligibility criteria.  They will send letters to potentially eligible homeowners, a process that may take several weeks.   If you think you qualify for a modification and do not receive a letter within several weeks, contact your mortgage servicer or a HUD-approved housing counselor.  Please be aware that servicers and counseling agencies are expected to receive an extraordinary number of calls about this program.

What should homeowners do if their home is already scheduled to be foreclosed?

Contact your mortgage servicer or credit counselor.  Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower's eligibility.