How the Program Would Work

By Renae Merle
Washington Post Staff Writer
Thursday, February 19, 2009

President Obama announced a massive foreclosure prevention program yesterday aimed at stabilizing the housing market and keeping millions of borrowers in their homes. Many of the details are still being worked out and will not be announced until March 4, but for the average homeowner, this is what it could mean:

QWho is this program for?

AA lot of people, up to 9 million, Obama said. The Homeowner Affordability and Stability Plan includes two initiatives. One is a refinancing program aimed at homeowners who have less than 20 percent equity in their home or owe more than their home is worth. The other program, aimed at homeowners at risk of losing their home, attempts to lower their monthly payments to affordable levels.

Who qualifies for the refinancing program?

It is only open to homeowners with loans owned or guaranteed by Fannie Mae and Freddie Mac, the mortgage financing giants taken over by the government last year. Borrowers who owe up to 5 percent more than their home is worth can qualify. More details about the requirements will be announced later, the White House said.

What kind of a refinanced loan could I receive?

Borrowers can refinance into a 30- or 15-year, fixed-rate loan based on current market rates. According to Freddie Mac's weekly survey, the average interest rate for a 30-year, fixed-rate mortgage last week was 5.16 percent and 4.81 percent for a 15-year, fixed-rate loan. It is unclear what, if any, credit score requirements the plan might include, but the White House said in a summary of the program that it would apply to "creditworthy borrowers."

The refinanced loan cannot include prepayment penalties or balloon payments.

Sign me up! How do I apply?

First, call your lender or the company that collects your mortgage payments, known as a servicer, and find out if your loan is owned or guaranteed by Fannie Mae or Freddie Mac. There is no need to hurry because lenders will not begin taking applications until next month. In the meantime, collect your financial information, including recent income tax returns and pay stubs.

Ok, but what about me? I am in trouble on my mortgage.

Under Obama's program, lenders are encouraged to lower homeowners' payments to 31 percent of their income. That could come from lowering the interest rate to as low as 2 percent or extending the terms of the loan. Lenders could also lower the principal owed by the borrower or stop charging interest on a portion of the loan, known as principal forbearance.

What if I am current on my loan but fear that I could fall behind soon?

You can still apply. This is among the few government and industry programs intended to help borrowers who are current on their mortgage but face an interest rate or another issue that could push them into delinquency soon.

Are there any extra perks for homeowners?

Yes. Under the Obama plan, homeowners who stay current on their mortgage after the modification will be eligible for an incentive payment of up to $1,000 a year from the government for five years. The bonus would be applied to the borrower's mortgage to lower the principal balance.

Can I apply for the modification program for investment properties?

No. The Obama administration made a point of excluding investment properties.

What else does this program require of me?

Not much. Homeowners can begin collecting their financial information and call their lender if they believe they may qualify for the program.

The program also takes special aim at homeowners with a lot of debt. If your total debt consumes 55 percent or more of your income, the program requires you to enter a government-certified consumer debt counseling program to qualify for the modification program.

View all comments that have been posted about this article.

© 2009 The Washington Post Company