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Understanding the Mortgage Plan

By Renae Merle
Washington Post Staff Writer
Thursday, March 5, 2009

The Obama administration offered new details of its Homeowner Affordability and Stability Plan yesterday. It aims to help up to 9 million homeowners lower their mortgage payments.

Here is what it could mean for you:

Who is this program for?

The 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 borrowers at risk of losing their home, attempts to lower their monthly payments to affordable levels.

Who qualifies for the refinancing program?

It is open only to homeowners with loans owned or guaranteed by Fannie Mae and Freddie Mac, the mortgage financing giants seized by the government last year. Borrowers who owe up to 5 percent more than their home is worth can qualify. The homeowners must be current on their loan.

The program ends June 2010.

How do I know whether my loan is owned or financed by Fannie Mae and Freddie Mac?

The simplest way is to call your lender or servicer, the company that sends your monthly bill.

What if I am in trouble on my mortgage?

Under the program, lenders are encouraged to lower homeowners' payments to 31 percent of their income. That could come from lowering the interest rate to as little 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 for the loan modification program. This is among the few government and industry programs intended to help borrowers who are current on their mortgage but face an interest rate increase or other issue that could push them into delinquency soon.

Are there any other requirements for the loan modification program?

Yes, several. The loan must have originated on or before Jan. 1, 2009. The property must be owner-occupied, and the principal balance cannot exceed $729,750. The program also requires the borrower to document income and sign an affidavit of financial hardship. The modification can occur between now and December 2012.

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