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Refinance Alternatives Expand with New Making Home Affordable Updates

Posted by  on May 22, 2009
 

The US Treasury recently released an update to the current administration's Making Home Affordable Program. Previously, troubled homeowners found the holder of their second mortgage the biggest obstacle to refinancing to better mortgage rates or modifying their home loans. Deals that were perfectly workable with a little cooperation stalled, sending homeowners unnecessarily into foreclosure.

The Second Lien Program was designed to help those whose first mortgages could be saved with cooperation from the second lien holder. In a foreclosure, the holder of the second mortgage loses everything when there isn't sufficient equity to pay both loans. And earlier programs for modifying the first mortgage left the second mortgage holders no better off. So there was no reason for them to cooperate and agree to extinguish their liens. That just evaporated any possibility of ever being repaid; there was no upside for these companies.

The updated program includes the following:

Second Lien Program To Create a Comprehensive Affordability Solution for Homeowners

  • Shared Efforts with Lenders to Reduce Second Mortgage Payments
  • Pay-for-Success Incentives for Servicers, Investors and Borrowers
  • Payment Schedule for Extinguishing Second Mortgages
  • Automatic Modification of a Second Lien When a First Lien is Modified

Because almost fifty percent of at-risk mortgages have second mortgage, this is not a small deal. And it can be complicated.

  • Second mortgage holders will share the costs of reducing interest rates and payments with the first mortgage holders.
  • The term (years remaining) on the second mortgage will be stretched out to equal that of the modified first mortgage.
  • So, if a homeowner gets a new 30 year first mortgage, her 15-year second mortgage will be stretched out too, lowering her payments.
  • Whatever principal reduction is completed on the first mortgage will be proportionally matched with the second mortgage. So if a man's first mortgage drops his $300,000 balance by 10% to $270,000, and he has a second mortgage of $20,000, that balance will also be reduced by 10% to $8,000.
  • The Second Lien Program will have a pay-for-success structure similar to the first lien modification program, aligning incentives to reduce homeowner payments in a way most cost effective for taxpayers. Servicers can be paid $500 up-front for a successful modification and then success payments of $250 per year for three years, as long as the modified first loan remains current. Borrowers can receive success payments of up to $250 per year for as many as five years. These payments will be applied to pay down principal on the first mortgage, helping to build the borrower's equity in the home and ensure the highest return for taxpayers as well.

 

While no one is crowing "mission accomplished" just yet, there are early signs that these updates are accomplishing their goals-minimizing risk and costs to taxpayers, encouraging the cooperation and sharing of losses among lenders, forestalling foreclosures, and setting a foundation for more sensible mortgage lending in the future. Since the launch of Making Home Affordable, more than one million Americans have now refinanced, due to historically low interest rates, and thousands of underwater borrowers have refinanced under the Home Affordable Refinance Program.

While the sheer volume of inquiries has made getting through to lenders and getting the right programs difficult for some, others found it easier than expected. According to a release by the US Treasury, homeowners Nicholas Tekpertey and Warren Rohn have already seen the impact of the MHA. modification program. In March, Tekpertey heard about the Home Affordable Modification from a friend, called his lender, faxed in his documents, and was qualified with relative ease. Pretty speedy as it's only May now. With this modification, he saves almost $600 per month. Warren Rohn received a Home Affordable Modification offer from his lender and was able to modify his loan with a 2% interest rate for five years-also relatively hassle-free.

So try the site www.makinghomeaffordable.gov and see if you qualify for any special government help. And if you don't, shop for current rates available, run some numbers through the mortgage calculators on Shoprate.com, and see if you can do it yourself--with help from a capable loan professional.

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