A homeowner relief program called the Homeowner Affordability and Stability Plan (HASP) was introduced by President Barack Obama. Although, not final, this initial release can give the American homeowner an idea of what may be available in a time of need.The version as it stands now is intended to help two kinds of homeowners. Those that have not fallen dangerously behind and the homeowner with a sub-prime or option ARM. For the homeowner that has not fallen seriously behind, the plan gives them the ability to refinance their loan in order to lower their payment, even if they owe as much as the home is worth. For the sub-prime and option ARM loans, the plan allows for a modification of the current loan to lower the payment. The goal is to prevent foreclosures by modifying the borrower’s current payment to make it more affordable.
Unfortunately, the plan is not going to help those with home values much less than what they owe on the home. The states affected by this the most include California, Nevada, Arizona, and Florida where real estate values have fallen dramatically. The plan is limited to loans with 105% loan-to-value meaning the borrower’s current loan cannot exceed 105% of the value of the home. For example, if a homeowner owes $250,000 on a house that is currently worth $210,000, that homeowner would be required to pay $29,500 cash to bring down the loan balance to the 105% value of the home to qualify for the refinance option. There are also additional limitations in relation to the balance owed on the current mortgage loan for participation in HASP. To participate in the refinancing option a borrower’s loan value cannot exceed $417,000.
For a homeowner who doesn’t owe much more than their home is worth, refinancing may still be difficult under the plan because there are requirements related to the securitization of the current loan. A loan has been securitized when it is pooled with other loans and sold to investors. The plan provides refinancing only for those borrowers with loans securitized by Fannie Mae and Freddie Mac. Other borrowers with loans that were securitized, but not with those two quasi-government agencies, may have a more difficult time qualifying for a refinance. To find out if the loan currently held is securitized and by who, ask the mortgage company that is servicing your current loan.
The modification provisions for sub-prime or option ARM loans also have some requirements based on the borrower’s income. The modified payment can be no more than 38% of the borrower’s gross monthly income. Once the payment is at that point, the federal government and the lender would pay equal amounts toward the borrower’s monthly loan payment to reduce the borrower’s loan payment from 38% to 31% of the borrower’s monthly gross income. The new lower interest rate would last for five years and then would rise in steps until it meets the interest rate that was prevailing as of the date of the modification.
There are issues that still need to be addressed in the initial plan. One of those issues is any requirement that might apply to subordinate liens on the house such as home equity loans or second mortgages. There are also outstanding issues relating to the borrower’s total debt-to-income ratio, which is the total amount of the borrower’s existing debt in comparison to their income, that need to be ironed out. Once these issues are addressed, there may be some changes regarding who will qualify for the program.