Making Home Mortgage Loans More Affordable

President Obama launched the Making Home Affordable program seeks to simplify the refinance and modification process for existing mortgage terms for homeowners. Under the plan, an estimated 9 million borrowers will qualify for more affordable mortgages and be able to stay in their homes. 

Under the program, applicants must have a loan in good standing with Fannie Mae or Freddie Mac. Borrowers do not have to be behind on their mortgage to qualify. The mortgage payment, including taxes, insurance and homeowners association dues, must exceed 31% of the borrowers’ gross monthly income. In addition, borrowers cannot owe more than 105% of their home’s current value. Real estate and loan officers would like to see banks ease up on the reins and take more steps to work with distressed borrowers struggling to remain in their property.

For many people, that will be almost impossible.  Pat Lotz said many people are upside-down on their mortgages, meaning they owe more than the current value of the home.  She recommended that homeowners contact their mortgage lenders as soon as they start having financial problems and ask if there are any mortgage loan modification plan they qualify for. She said these programs could provide much-needed assistance, but it does require patience.

Lotz said she would like to see banks look at individual portfolios and personal situations when making decisions. She also wants to see banks make more funds available. “I would like to see banks releasing money from the bailout,” Lotz said. Branch Manager of John Adams Mortgage, John Millard said, “It’s not trickling down to the homeowners.”  Millard continued, “I definitely think the banks could do more and only 1% of his business involved the FHA just a few years back. Today, FHA home loans account for 90% of his business. He said the FHA requires lower down payments and doesn’t penalize people with lower credit scores.

Homeowners seeking a short sale in which the bank waives a portion of the loan should anticipate a long process between three and six months. She has heard from residents who have not heard back from banks when they called for assistance. Millard said Obama’s refinancing and loan modification program is geared to help borrowers who are struggling to make their mortgage payments and could be facing home foreclosure.  His biggest concern has been the significant decrease in property values and this loss of equity that has been driven by foreclosures and the credit crisis.  Unfortunately, homeowners rarely are approved for mortgage refinancing when their home values have tanked.

Most housing markets saw no change in their maximum FHA loan limit when the government restored higher limits that had been in effect for most of 2008, even though house prices declined in almost all areas of the country. The same 20 real estate markets needs the higher loan amounts of $729,750 outlined by the FHA loan limit.