The condition of our economy and decreasing values of homes has been devastating for the millions of responsible people who are struggling to make their mortgage payments. Unemployment, cutbacks, reduced work hours and in extreme cases, pay cuts, are expected cause as many as 6 million families to face foreclosure in the next few years. In addition, millions more will struggle to make ends meet.



Economists expect this crisis to be temporary, as real estate prices continue to decline and the demand for housing increases. Until we experience a new balance, something needs to be done to assist those who are losing their homes. As lenders continue to foreclose, neighborhood values continue to decline.

Vacant, boarded homes are an eyesore to neighborhoods; these properties are often neglected, lawns aren't mowed, trash and debris accumulates and kids are attracted to what they think of as their ?club house? or ?fort?. In worse case scenarios, child predators find these empty houses convenient for committing unspeakable acts!

New President Brings New Hope

The Obama Administration launched several new programs in March, 2009, to offer assistance to as many as 9 million homeowners who continue their effort to make their mortgage payments. The plan is to reduce the destructive impact of the housing crisis on families and communities. The Making Home Affordable program was designed to support a recovery in the housing market and ensure that responsible homeowners will be able to continue making their mortgage payments.

The Making Home Affordable Program brings together government, lenders, loan servicers, investors and borrowers to share responsibility towards ensuring Americans can afford to stay in their homes.

A Home Affordable Refinance Program

This program is designed to provide the opportunity for up to 5 million responsible homeowners to refinance their mortgage. Current interest rates are at historically low levels which allow homeowners to reduce their monthly mortgage payments. Under current rules, homeowners must owe no more than 105% of their home's value in order to qualify. Millions of homeowners put 20% down when they purchased their homes; some even made additional principal payments, but are still facing problems refinancing their homes due to sharply declining market values. The Obama Administration's program offers an opportunity for responsible homeowners whose loans are guaranteed or owned by Freddie Mac and Fannie Mae to refinance through the two institutions, reducing their monthly mortgage payments to make their homes more affordable.

A Home Affordable Modification Program

This is a $75 Billion program intended to prevent foreclosures and help responsible homeowners keep their homes by modifying the terms of their mortgage. The Treasury Department is working with federal agencies on a comprehensive multi-part strategy to prevent millions of foreclosures.

This program is intended to help millions of homeowners who are struggling to keep up with their mortgage payments due to the current recession; yet, cannot sell their homes because market values have declined so that they owe more on their mortgage than the amount they can expect to sell their home for. Many responsible homeowners have fallen victim to the hidden fees and increased mortgage payments as a result of the subprime mortgage that seemed to be a great deal at the time it was executed. This program was designed to provide security for families and stability for neighborhoods hardest hit by foreclosures.

The beauty of this program is that it brings together all parties involved, including lenders, investors, servicers and borrowers and the government to share in the cost of ensuring that responsible homeowners can afford their monthly mortgage payments. This will result in reduced foreclosures and to avoid further downward pressures on overall home prices.

How it Works

The Treasury will partner with financial institutions and investors to reduce homeowners? monthly mortgage payments.

As the lender agrees to a mortgage modification, they will reduce monthly payments to a level no greater than 38% of the borrower's income.

The Treasury shares the costs of reducing the payment further, from 38% of the borrower's income to 31% of the borrower's income.

The modified payments are kept in place for 5 years. After 5 years, the interest rate can be gradually increased by 1% per year until it reaches the capped rate in place at the time of the modification.

To reach the lower payment, interest rates can be reduced to as low as 2%. If the debt-to-income ratio is till above 31%, then lenders will extend the term of the mortgage, amortizing it for a period of up to 40 years, and as a last resort, forbear principal at no interest until the payment is reduced to the 31% target.

Lender Incentives to Cooperate

Servicers will receive $1,000 for each eligible modification which meets the guidelines established under this new Home Affordable Modification Plan. In addition, lenders/servicers will receive $1,000 per year, for three years, as long as the borrower is successful in keeping with the program.

Servicers will be offered similar incentives if they modify FHA, VA or Agriculture Department loans, or refinance loans according to the Hope for Homeowners or similar FHA programs.

Loan modifications are more likely to be successful if they are made before a borrower becomes delinquent in their payments; therefore, additional incentives are offered to mortgage holders and servicers for modifications made while a borrower is at risk of default, but still current on their mortgage.

Hopefully, many homeowners will take advantage of one of these programs, to prevent foreclosure and to remain in their homes. If not, then we may be faced with neighborhoods with occupied homes being few and far between!

This article was written by David Smith (734-756-6050) of U-Move-On, a company who helps people find the best solution to their foreclosure problem. David provides the resources and services to help with the entire foreclosure process, credit restoration, legal help and more. David's program helps people in foreclosure decide if they should walk away or pursue loan modification.