Who gains from Obama's housing plan?

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President Obama said his new housing plan isn't designed to help "unscrupulous or irresponsible" homeowners, but is aimed at those stuck in high interest mortgages and those needing loan modifications, as long as they can prove they can afford the loan after modification. People who bought a lot more home than they can afford will not be helped by this program.

Basically there are two kinds of loan programs. The first programwill help those who are current on their home mortgage but can't refinance to a lower interest rate because their home has lost value. The second program will help those who are at risk of foreclosure with loan modification. Full details will be available on March 4, which is the first day you'll be able to apply for the new loan programs. Both programs are designed to help people who seek help with home loans on property they use as their primary residence. Investors are not eligible.

First, let's look at what's available for people who are current on their mortgage, but can't refinance because their home has lost value. Obama hopes to help about five million people in this category. Right now most lenders require 80% loan to value. If your home has lost value and you no longer have equity in the home, you can't refinance to a lower interest rate even if it means your mortgage payment would go down. Under the Obama plan, Fannie Mae and Freddie Mac will make loans available for a 15-year or 30-year refinance up to a 105% of your current market value. So if your home's current market value is $200,000, you will be eligible for a mortgage of $210,000.

So how does this help? Suppose you bought a home for $250,000 and put down 20%, but you decided to do an interest only loan with a balloon payment or an adjustable rate loan that's much higher than current fixed rates. You're current mortgage is about $200,000 and your home is worth about $200,000. Prior to the new program proposed by Obama you'd be stuck with the higher interest loan. Now you'll be able to refinance to a low fixed rate provided you currently have a loan held by Fannie Mae or Freddie Mac or your loan was sold to Fannie Mae or Freddie Mac. You'll need to call your lender after March 4 to see if your loan qualifies.

The second group of people who will be helped are those who are at risk of foreclosure. These will be people already behind on their mortgage or who are struggling to keep their loans current. Obama hopes to help as many as three to four million people in this category. You don't have to miss a payment to be eligible for help, but you will have to prove that your income is no longer sufficient to make your mortgage payments. This can be because of several factors including loss of income, significant increase in expenses or an interest rate that will reset to an unaffordable level.

To be eligible for this program you must occupy the house as your primary residence, your monthly mortgage payments must be no greater than 31% of your monthly gross income and your loan can not exceed allowable Fannie Mae/Freddie Mac loan limits. For a single family home that's $417,000 in most parts of the country, but can go as high as $938,250 in high cost areas of Alaska and Hawaii for example. You can use the program for a two, three and four multiplex unit provided one of the units is your primary residence.

Lenders are most likely to lower your payments with interest rate reductions, but there are incentives in this program to lower your loan principal if your lender chooses to do so. To encourage you to retain home ownership the government is offering to reduce your debt by $5,000 if you pay on time for five years after getting a modification. There will be no cost for the modification. Lenders have been asked to review the loans they now have to find eligible candidates, but after March 4 you can call your lender to see if you qualify.

Lita Epstein has written more than 25 books including "The 250 Questions You Should Ask to Avoid Foreclosure" and "Surviving a Layoff: A Week by Week Guide to Getting Your Life Back Together."
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