Obama's Foreclosure Prevention Program
Thursday, March 5, 2009; 11:00 AM
Washington Post staff writer Renae Merle and Marietta Rodriguez, director of National Homeownership Programs at NeighborWorks America, were online Thursday, March 5 at 11 a.m. ET to discuss the President's new program to help homeowners. NeighborWorks is a non-profit community development corporation based in Washington, D.C.
A transcript follows.
See if you qualify for the programs by taking our interactive questionnaire.
Renae Merle: Hi and welcome everyone. Yesterday, the Obama administration detailed its plan for tackling the country's growing foreclosure crisis. The problem has deepened in the last year despite various government and industry program. That was illustrated by a delinquency survey issued today by the Mortgage Bankers Association.
Now on to your questions.
washingtonpost.com: More Than 11 Percent of Mortgages Delinquent or in Foreclosure
Ambler, Pa.: Would you please let me know the status of allowing bankruptcy judges to modify mortgages. What are the chances of it passing both the house and Senate? thanks.
Renae Merle: The House is expected to take up this legislation in the next few hours. It faced some resistance from moderate Democrats last week, but appears to be back on track.
The bill has some powerful backers in the Senate, but the legislation is still expected to face a tougher time there. The financial services industry and Republicans continue to oppose it.
Washington, D.C.: It appears that the program is only for Freddie/Fannie loans. What happens if your loan is simply held by your bank, they never sold it? Could your loan still qualify?
Marietta Rodriguez: The program announced yesterday has two parts, a loan refinance for borrowers who have Fannie Mae or Freddie Mac loans and a second part for homeowners who are delinquent currently---this second part is available to all borrowers provided that your lender is participating in this program.
Karen Miller, D.C.: What is the difference between the bankruptcy bill and President Obama's plan
Renae Merle: The Obama plan focuses on two things:
1. Refinancing homeowners current on their mortgage into more affordable loans. It is focused on people with little or no equity on their home that have not been able to refinance before.
2. Paying lenders to make the mortgage payments of struggling homowners more affordable -- 31 percent of their income.
Obama came out in favor of the bankruptcy modification bill as part of the plan. But unlike the refinancing and loan modifications programs, changing the bankruptcy code will take the approval of Congress.
Boynton Beach, Florida: The Borrower Q & A on the Treasury Web site asks the question "Are the owner occupant of a one to four unit home?"
Does this mean that townhome and condo owners who live in buildings with more than four units are not eligible for the refinance option?
Marietta Rodriguez: The program "Making Home Affordable Refinance and Modification" is available to all homeowers who have a mortgage whether it is a condo, townhouse, single unit, duplex, tri-plex or quads.
Burke, Va: OK, I have been drinking the Kool-Aide as far as believing that we have to bail out bad mortgages in order to avoid a domino effect of failing financial institutions.
However, having just refinanced my own mortage to a 4.5% interest rate at considerable expense, I'll be damned if I can see why we need to bail out people by giving them 2% interest mortgages. This really does seem to be rewarding people for making bad decisions as far as what they can afford in a house.
Marietta Rodriguez: While I can understand your perspective, think about your own property values if 10% of your neighborhood suddenly goes vacant due to foreclosures.
The reality of this crisis, is that it is large in scope and scale.....this program is designed to curb the growth of the foreclosure crisis and stabilize home values and communities.
Springfield, Va.: Hello. My dad has been living in the same house for about 30 years now. He's been keeping up with his mortgage payments up to now. However, the declining economy is hurting his business and thus his income, making it difficult to make payments. He hasn't missed any payments because I've been helping him, but is there anything out there to help him? Thanks.
Renae Merle: I think the Obama plan is aimed at people exactly like your father who have not missed a payment, but are struggling to keep up. You should check out whether his lender would be willing to modify his loan to a more affordable payment. Under the Obama plan, his payment could be lowered to 31 percent of his income. That could be accomplished, in part, by lowering his interest rate to 2 percent.
Washington, D.C.: What if you have a separate home equity loan that has become too much? Does it matter if it is owned by a different bank?
Marietta Rodriguez: No....this program is designed to address first mortgage issues.....the program does encourage (through incentive fees paid to your lender) for subordiante mortages to be addressed...again, this program is addressing the first mortgage primarily.
Manassas, VA: How can a homeowner determine if their mortgage is guaranteed by Fannie Mae or Freddie Mac?
Renae Merle: This question refers to one of the most difficult parts of the refinancing program. Unlike other refinancing programs, borrowers with than less than 20 percent equity in their home can qualify. They can even qualify if they are underwater on their loan by up to 5 percent. But only loans owned or guaranteed by Fannie Mae and Freddie Mac are eligible.
The simplest way to find out if your loan falls under this program is to call your lender or servicer -- the company that collects your monthly payments. I belive the Treasury Department is also creating some kind of online search engine so that people look it up themselves, but it's not ready yet.
Atlanta: Good Morning and thanks for taking questions. I have a co-worker that bought a house in 2005 at the height of the market. She and her spouse both currently have jobs and have been paying their mortgage on time. The problem is that the values have dropped. They paid appx. $225K in 2005 and a house right next door recently sold for appx. $165K. Does a situation like this get any assistance under the Obama plan?
Marietta Rodriguez: Yes, your co-worker should consider the refinance portion of this program. Before this plan, people like your co-worker has no ability to refinance once propery values droppped......this program gives them and others like them a path.
Anonymous: The second program, "2. Paying lenders to make the mortgage payments of struggling homowners more affordable -- 31 percent of their income," has nothing to do with Fannie Mae or being delinquent, as you first stated. I qualify, according to the Post (as a "struggling borower"; my mortgage payment is 2/3 of my gross pay), how do I apply?
Marietta Rodriguez: Everyone interested in this program should either go to www.financialstability.gov website or call their lender and express interest in being qualified for this program. Another avenue is to work with a HUD-approved housing counselor, they can also help you through this program.
Miami, Fla.: My husband can't file for bankruptcy because he will lose his security clearance from his federal employer. Didn't anyone think of this?
Renae Merle: That's interesting. I had not thought of that, but that would certainly be an issue in the Washingtin area where a lot of people are walking around with a security clearance.
Portland, Ore.: A Key provision of the loan modification guidance is the Net Present value determination but key variables are yet to be published.The Modification Program Guidelines document says 1. That FHFA will provide key information necessary to complete this calculation ".... home price forecast, valuation of the house price depreciation reserve, foreclosure timelines, and foreclosure costs and REO stigma". 2.Treasury is also supposed to provide updated "Cure Rates and Redefault Rates"
WHEN will these key variables be available?
Marietta Rodriguez: THe NPV test is a key element of this plan....we hope that specifics will be released soon. Certainly your lender should be able to walk you through your specific property valuation and you should ask them to do so.
Washington, D.C.: First off, the notion that we are paying people to pay their mortgages is offensive. Where is the belief that your debts are an obligation, not an option.
Anyway, the plan seems to leave out those most in need - people who have lost their jobs. How does this plan help anyone who can't pay their mortgage because of job loss?
Renae Merle: No, the plan doesn't offer much help for people with no income. In fact, the administration has been pretty straight forward about the fact that this program will not stop every foreclosure.
Old City I: In the Post story yesterday, it was a bit ambiguous, but it seemed that the author was speculating that rates for a 30-year-fixed could go as low as 2 percent. Did I read that wrong?
At what point do we (non-desperate but 6 percent+ mortgagees) pull the trigger?
Marietta Rodriguez: Remember, this program has two parts, a refinance which is priced at today's market rate---this part is targeted at those borrowers who have very high interest rate today making thier mortgage unaffordable.
The second part is the loan modification program, which after many other remedies can write your interest rate down as low as 2%...however you will exhaust everyother option first.
Bozeman, Mont.: I heard that the self-employed don't qualify for Obama's refinancing plan. Is this true? Also, how do I find out if my mortgage is backed by Fannie Mae or Freddie Mac?
Marietta Rodriguez: Those borrowers who are self-employed are not excluded from the Makeing Home Affordable program.
In order to find out if your loan is Fannie or Freddie, you can ask your lender they are required to tell you.
Leesburg, VA: I have an interest only loan at 6.125% with a remaining balance of $534k with Wells Fargo. As of now, my mortgage alone takes up 62% of my monthly take home income, not including other obligations (credit cards, car payment, etc.) Under the new housing plan, will I be eligible to have my mortgage reduced to a point where it's only eating up 38% of my take home income?
Renae Merle: Did you type that correctly? Your mortgage takes up 62 percent of your income. That is a pretty high debt level and yes, you should qualify for a loan modification. The modification should bring your payments down to 31 percent of your income, not 38 percent.
Virginia: Is there any income limit to qualify for the refinacing? I'm affraid my AGI might be too high to qualify, even though I'm upside down on my condo.
Renae Merle: Nope. No income requirement that I have ben able to detect. More important is whether the loan is owned or guaranteed by Fannie and Freddie.
Glenn Dale, MD: Thank you for taking my question.
I have been struggling to pay my mortgage and have not defaulted, my spouse has lost his job and its been tough meeting our bills.
If I apply for a modification of my mortgage, will my credit score be affected?
Marietta Rodriguez: Your credit score won't be affected because you apply for this program.....however if you are late/delinquent or if your home goes into foreclosure your credit score will reflect that......because you have ahd a life event (job loss) you would meet one of the five criteria of loss of income.
Washington DC: Thanks very much for doing this chat! I am confused by the lack of detail I have seen about eligibility requirements for the refinancing plan. Everything I have read says that you will have to have information about your income, other debts, and second mortgage in order to apply, but I can't find anything about what the requirements are in that regard. Does having a second mortgage of a certain size or some amount of other debt mean you don't qualify?
(I live in DC and seem to otherwise qualify for the refinancing program, to my delight, but I have a 15% "piggyback" mortgage and significant law school debt, so I am nervous that will mean I won't qualify.)
washingtonpost.com: Take a look at our interactive questionnaire to see if you qualify. This page also has other resources to help guide you: Foreclosure Prevention Special Report
Renae Merle: Your piggy back or second lien shouldn't disqualify you from the refinancing program. That program looks at the balance of your primary mortgage, or first lien. If it is more than 5 percent above the home's value then you may have a probhem.
Fort Lauderdale - State Employee: We were transferred here in 2006 and purchased house for $415,000. We still owe $364,000, but home is worth in ballpark of $252,000. That is more than the 105% of the the new plan. It doesn't sound like the new Housing plan will help us. We are still current on the mortagages, but since my wife hasn't been able to find a job we won't last much longer. Any ideas?
Marietta Rodriguez: I would reccomend you contact your lender and request a loan modifcation.....the bottom line is that it will cost your lender more if you fall behind and go into foreclosure than if your lender modified your loan to make it more affordable for your family.
Why only Fannie/Freddie?: I went through and thought I qualified for the 1st program, but my lender told me that my loan is not backed by Fannie or Freddie. Why are they the only ones to get help? As a homeowner, I'm not struggling any less because the loan is backed by someone else.
Renae Merle: I think a lot of homeowners are going to find themselves in your position. It's a crapshoot. You as a homeowner have no control of whether Fannie and Fredie decide to back your loan. It is just the luck of the draw.
Washington DC: I don't seem to qualify under the Obama Plan per the Post questionaire. I have a case filed in DC/US Bankruptcy Court for a loan recission--pre-trial set for Nov. 4, 2009. I have tried to deal with my mortgage servicer and my mortgage company to no avail. Is there anything I could do except proceed with the Court case? Is it possible the Bankruptcy Judge could change my loan? How do I find this out?
Marietta Rodriguez: Right now, under current bankruptcy laws the judge can't touch your mortgage---however there is legistation making its way through Congress that could give bankruptcy judges this authority
I bought a house 2 years ago with 21% down payment and 1 point to get 5.25% 5 year ARM. Now the value is 25 - 40 % down. I don't get any help from the Obama's plan. Should I walk away? Then how? Thanks!
Renae Merle: Are you sure you do not qualify for the refinancing program? Call your lender and check before making any decisions. It doesn't seem like you know the exact value of your home, so maybe you would fit under the cap. And if you don't qualify for refinancing, but are having trouble making your payments, ask for a loan modification. There are tons of options you should consider before walking away.
Princeton, NJ: I spend about half my income on mortgages on my primary residence, but it's an expensive house and I am by no means poor ($100K last year). Are there limits on how expensive the house is in the program?
Marietta Rodriguez: The program has restrictions on the mortgage amount but not on the home price. I would reccomend evaluating the refinance portion of this program....there are other qualifications....but worth investigating given your situation
Atlanta, GA: What are the consequences to companies which own Mortgage backed securities and then the balances and/or interest rates are lowered?
Marietta Rodriguez: Depends on the structure of the security.....there are a multitude of governing documents that would dictate the consaquences to the investor.
Very Confused!: The loan modification program (according to what you've stated) would help people who are current and upside down to bring their their monthly payments within 31% of their monthly gross income?
But, in another statement you are referring to the requirement of the loan being backed by Freddie or Fannie.
I'm so confused, are these two separate things?
Renae Merle: I think people are confused because there are two different programs.
One: A refinancing program for people current on their mortgage, but with less than 20 percent equity or upside down. You can have your interest rate brought down to the market rate at the time of the refinancing. You must have a loan backed by Fannie and Freddie to qualify.
Two: A loan modification program for people delinquent (or current and struggling to make their payments). This is the one that aims that bring down payments to 31% of your income. You do NOT need to have a loan backed by Fannie and Freddie to qualify.
Montpelier, Vt: I am the lead contact person in a small state program for VT owner occupants seeking loan modifications/forbearances, etc. We send our requests for review as regulators of licensed lenders directly to Loss Mitigation and save the consumer from the black hole of toll free lines manned by collections agents. We have a high success rate. What I need to know right about away(!!!)is:
When/how do we find out which servicers are participating in this program?
It appears any firm holding a large position in 2nd mortgages will decline rather than risk their 2nd's being eliminated. Problem: All the parties holding firsts also hold 2nd's. Where does that leave the consumer?
If a party has been denied a mod through us based on a monthly deficit, they will be re-applying for the program that is tied to anyone with a debt to income ratio exceeding the amount which prior to this disqualified them.
Our home ownership centers are already overwhelmed, as are the servicers, who are laying people off?? How will this volume be managed?
Thank you very much. I hope to be able to participate at 11.
Marianne Callahan, VT Dept. of Banking
Marietta Rodriguez: Okay let me see if I can help with all of your questions.
First, while there is not a published list of those lenders participating.....we expect that the fincancialstability.gov webiste will have this information in the future. As for now, you will need to ask them one-by-one.
As for second mortgages, there is a set of incentives that the lenders will receive if they are able to restructure all mortgage debt, including subordiante mortgages.....but we don't know if the scond mortgage holders will participate as this program is targeted at first lien holders.
If in the past a borrower was denied a modification, I would encourage them to re-appply under this program.
The capacity of all industries to be responsive under this nore program is a concern....however what this program does do, is give lenders clear guidelines to help streamline thier processes.....which in the long-term assist with the backlog.
Alexandria, VA: Two questions regarding the "refinancing program for borrowers with little equity in their homes but current on their loans" aspect of the program.
Is there an income limit? I know eligibility for a lot of programs are based on a taxpayer's (or family's) adjusted gross income.
Can I combine my first and second mortgage into one under this program? With the two loans together, i'm upside down about 25,000. Not too bad, of course I'm down about $85000 from what I paid a few years ago.
Marietta Rodriguez: First, there are no income limits to either parts of this program.
Second, while this program target's first mortgages, thiere are a set of incentives for lenders if they are successful at restructuring subordinate mortgages through this effort.
Worth investigating for you....call your lender!
Bennett Point, MD: I paid off my 30 year mortgage in 16 years by spending responsibly(I drove a truck for 375,000 miles) and not buying too much house. Why can I not get a subsidy from President Obama for acting responsibly rather than foolishly?
Renae Merle: Why do you need a subsidy? It sounds like you're doing great!
Seriously, I know there are a lot of people who feel this way. They sacraficed to make their mortgage payments and acted responsibly and feel like people who didn't are being rewarded. You are not alone in your frustration.
Minneapolis, Minn.: Hello;
I have been laid-off in Jan and we are living on unemployment. The unemployment barley covers my mortgage and 2nd.
I am not behind in payment. Can I refinance with no job? or do I have to wait until I am employed?
Marietta Rodriguez: First, if you are interested in the refinance program, the first screen is whether your loan is a Fannie Mae or Freddie Mac loan.
Second, they may be willing to consider a refinance given your current situation.....you should investigate.
Laid off: My husband was recently laid off. I am working, but barely make enough to cover our mortgage. we have a first and second totalling 595k. Our interest rate on the first is 6.25 and the 7.25 on the second. The value of our home has held fairly steady, but obviously we are not going to be able to keep current on our mortgage very long on my income alone. I have no idea whether our mortgage is owned by Fannie/Freddie. We want to stay current on our mortgage and avoid default - will any of these programs help us?
Marietta Rodriguez: Possibily, yes!
You need to first ask your lender whether you have a Fannie/Freddie loan. Certainly if you do, the refi option of this program could be very benficial to you given the current market interest rates.
Leesburg, VA: yes, 62%! how will the banks bring the payments down - through extending the loan or lowering the interest rate? Also, will they help people get out of I/O loans?
Lastly, the loan mod. will only exist for 5 years, if I understand the plan correctly. Is that right?
Renae Merle: Geez.
First they could lower your interest rate to as low as 2 percent. That would stay steady for 5 years and then creep back up to the current market rate -- about 5 percent. If that is not enough to make your payments affordable, then they will extend the terms of your loan from 30 years to 40 years. If that is still not enough they would try principal forbearance.
Yes, it is my understanding that you would be moved from a interest only mortgage into a plain vanilla 30-year fixed.
Fairfax, VA: my mortgate is 36% of my monthly income. house is less than 729K and it is my primary residence. will i qualify for a loan modification or do i have further prove 'hardship'? and how do i go about proving this? it seems very vague..
Marietta Rodriguez: Again, there to parts of this program....refinance and loan modification.....if you are current on your mortgage, the path would be to investigate the refinance part of this program.....thie first screen on the refinance is whether your loan is a Fannie or Freddie loan.....I think given your situation, you should investigate, ask your lender about the your loan and go from there.
South Rding, VA: I'm not having problem with making mortgage payments, but I want to see if there is any chance to refi to a lower interest rate. Our mortgage is with Wells Fargo, it's our primary residence, our current monthly mortgage payment is below 31% of our household gross income. Still we want to take adavtange of the current lower rates. But due to the depreciation of the house value, we're probably 4% or 5% underwater (we put down 20% at the time of purchase). I'm happy that I don't need the government's bailout, but I'm wondering if this new plan would prompt some lenders like Wells Fargo to allow people in my case to refi to a lower rate? Thanks!
Renae Merle: Give Wells Fargo a call and ask if your loan is backed by Fannie Mae or Freddie Mac. Otherwise it sounds like you qualify for a refinancing. That program is aimed at people like you who are current, but have not been able to refi because of falling home prices. Good luck.
Powhatan, Va.: Sorry, but I sure don't support bailing out homeowners. I don't believe the majority of families in bad mortgage situations are going to be "okay" just because we tinkered with their interest rate or gave them an extra $150 a month. I all likelihood they are rampant consumers to begin with and will end up defaulting later anyhow. Go get an apartment.
Renae Merle: One person's opinion.
"Didn't anyone think of this?" : As a government employee, with a mortgage of my own, I want to respond to that line specifically. I am sorry your husband's security clearance is at stake. More than likely, "nobody" thought of it because it's not possible to consider the infinite possibilities of cirmcumstances of who could be adversely affected. We are trying to help, but our help isn't perfect.
Renae Merle: In response to a previous question.
Martinsburg, WV: From everything I've read, to date, it doesn't seem that a person like myself will be able to benefit from the new government programs even though my debt to income ratio for just my mortgage is currently running in the mid-40% range and I'm 'under water' (as they say) on my mortgage; holding both a 1st and 2nd.
I am not, nor have I ever been late on my mortgage payment. But, I do struggle each month to make sure that all of my bills are paid on-time.
I'm 95% certain that my mortgage is not back by Freddie or Fannie. What's the realistic possibility that I would be able to refinance my mortgage for the current market value?
Marietta Rodriguez: I would try a straight refinance with your lender......you have nothing to lose here.....doing nothing, getting further upside down is not a good option either.
I would confirm that your mortgage is not Freddie/Fannie, first, investigate the straight refi, and also look at your household budget too....
Washington, DC: Is the legislation in its final version or could there be more changes. So far the whole process has been like a moving target with new twists every week.
Renae Merle: I assume you are asking about bankruptcy modification legislation better known as cramdown. The House will consider several amendments before voting on the bill later today. Beyond that it faces a tough audience in the Senate and I would not be surprised if it was changed further.
Mount Dora, FL: I own two homes. The home I am occupying is in foreclosure. The other home I rent out to another person.
My question is, do I qualify for refinancing or modification under the plan on the home that is in foreclosure, even though I own two homes and could just move to the other home if I lost my main home? If so, it seems like this is very unfair, although I'd be happy about it.
Marietta Rodriguez: Okay, first, if the home you are currently occupying is in foreclosure, you could pursue a loan modification to make it more affordable. There might be options for you...the program is designed to target owner-occupants--so I would start there with your home in foreclosure.
You a can always move into your other home...I would review tenant laws in your area, however.
Arlington, VA: I have a mortgage with a high interest rate that is financed by fannie however I purchased my home less than a year ago. Should that affect whether or not I can qualify under this new program?
Renae Merle: No. As long as your are current and have not missed a payment, you should still quaklify.
Renae Merle: Thanks for all of the great questions and I am sorry we didn't get to all of them. Obviously there are a lot of emotions surrounding this issue on both sides.
I would like to especially thank Marietta Rodriguez for joining us and tackling these questions.
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