In March 2009, President Obama introduced a plan to use government money in order rescue families that are having trouble to paying their mortgages. Essentially a mortgage bail out.
Called “Making Home Affordable,” the program is expected to save up to four million families from foreclosure and cost around $75 billion. The Home Loan Relief Plan by the Obama administration is said to only apply to mortgages made on or before January 1, 2009 and will be in effect until January 2012, unless extended.
The Home Loan Relief Plan’s role is to not only provide relief to helpless families, but also guard neighborhoods from the side effects of foreclosures: such as lower home values, blight, increase crime, and homelessness.
This Home Loan Relief program requires lenders and banks to decide whether lowering the financial burden on families — with help from the federal government — would cost them less than foreclosing on a home. If they determine that lowering the monthly payments does cost them less, they would be required to do so. If not, then the banks could still make the mortgage modifications—but at their own discretion.
Banks who conclude that foreclosure would be less expensive than modifying the conditions of a loan still would be required to examine other options before seizing the home.
Other options to the Obama plan include a short sale, in which the house is sold for less than the outstanding mortgage amount at no penalty to the lender, and a Deed-in-lieu of Foreclosure where the homeowner turns over the home voluntarily.
Ultimately, the purpose is to have at-risk homeowners spending no more than 31% of their gross monthly income on housing. Currently, many are spending between 40% and 50%.
Guidelines also state that can use cash incentives from the government to bring the percentage down to 38% by lowering interest rates, setting longer mortgage payback periods, or reducing the amount of principal owed. From the 38% mark down to 31%, the government will give lenders a dollar-for-dollar match in cash.
So far, 16 mortgage servicers, representing 80 percent of home loans nationally, have signed on to Making Home Affordable, according to Deputy Treasury Secretary Seth Wheeler.
To find out if you are eligible for the Obama Home Loan Relief Plan, visit Making Home Affordable
Have you applied for the Obama Home Relief Plan? How has it helped you?