Making Home Affordable (MHA) plan

Over the last few months, there have been dramatic differences in the interest rates being charged on "conforming" (up to $417,000) vs. "non-conforming" (over $417,000) mortgages. This relates to the federal government's subsidy of mortgages through Fannie Mae and Freddie Mac. Recent legislation aims to bring down interest rates on mortgages that reflects the higher average home prices in higher income areas.

In summary - I think it's highly likely that we'll see mortgage rates drop for loans up to $729,000 in California and New York over the next few weeks. In response to the many questions we've received on this, we thought the following information might explain how the government is indirectly and directly driving down rates through what is collectively known as the "Making Home Affordable Plan" (MHAP).

The MHAP is made up of two plans:
The Home Affordable Refinance plan provides access to low-cost refinancing for responsible homeowners suffering from falling home prices.
The Home Affordable Modification plan will assist homeowners in danger of losing their homes to foreclosure. The Home Affordable Refinance plan: While mortgage rates are now at historic lows, many homeowners with mortgages owned by Fannie Mae or Freddie Mac are unable to refinance their higher-rate mortgages because they have lost equity in their properties due to falling home prices. Under current rules, Fannie Mae and Freddie Mac cannot guarantee a mortgage that exceeds 80 percent of the home's value. The Home Affordable Refinance plan removes this restriction, allowing certain homeowners to refinance their mortgages. A homeowner qualifies for this refinancing if:  The property is owner-occupied and the existing mortgage is current  The existing mortgage is owned by Fannie Mae or Freddie Mac  The new mortgage balance will not exceed 105 percent of the home’s current value  The mortgage balance must not exceed $729,750 for single-family homes This plan runs until June 1, 2010. The Home Affordable Modification plan: The Home Affordable Modification plan will assist responsible homeowners who are now struggling to afford their mortgage payments and who cannot sell their homes because prices have fallen significantly, in many cases making the value of the property less than what is owed on it. The intent of the program is to offer loan modifications that will bring a homeowner's monthly payments to sustainable levels. To qualify, a homeowner must:  Be an owner-occupant  Have a mortgage created on or before January 1, 2009  Be in financial hardship or in imminent danger of financial hardship  Have a current mortgage payment (including taxes and insurance) that exceeds 31 percent of monthly gross income  Have a loan amount that does not exceed $729,750 for a single-family home (however, the loan need not be owned by Fannie Mae or Freddie Mac)  Apply by December 31, 2012 Homeowners with total "back-end" debt (including housing debt, car loans or leases, and credit card debt) equal to or greater than 55 percent of their gross income must enter a HUD-certified credit counseling program as a condition for loan modification. Lenders must reduce the borrower's monthly mortgage payment to not more than 38 percent of his or her monthly gross income. The U.S. Treasury will then share the costs of reducing the payment dollar-for-dollar to a debt-to-income ratio of 31 percent. This may be accomplished by capitalizing arrearage, dropping the interest rate to as low as 2 percent, extending the loan term to up to 40 years, and/or forbearing principal. (Principal forbearance will result in a balloon payment due on the loan's maturity date, upon sale of the property, or upon payoff of the interest-bearing balance.) The modified payments must be kept in place for five years, and then the interest rate can be stepped up by no more than one percent per year to the 30-year fixed conforming loan rate in place at the time of the modification. Loans that are delinquent or that are in imminent danger of default are subject to a net present value (NPV) test. This test compares the NPV of cash flows expected from the loan modification to the NPV of cash flows expected in the absence of modification (e.g., through foreclosure). If the NPV due to the modification scenario is greater, a Home Affordable Modification must be offered to the borrower. No modification fees may be charged to the borrower and unpaid late fees to the borrower will be waived. The following incentives are offered to accomplish modifications: • Mortgage servicers are offered an up-front fee of $1,000 for each delinquent loan modification meeting the guidelines. As long as the borrower stays current on the loan, the servicer will also receive a Pay for Success payment of up to $1,000 annually for 3 years. • Mortgage servicers will be paid $500, and mortgage holders will be paid $1,500, for each at-risk loan modified before the borrower falls behind on payments. • Borrowers who make timely mortgage payments will receive Pay for Performance principal balance reduction payments equivalent to $1,000 a year for up to 5 years. • To encourage lenders to modify more mortgages, cash payments to partially offset probable losses from home price declines will be made on each modified loan that remains active in the program. Additional incentives will be provided to extinguish junior liens on homes with modified first-lien loans. Compensation will also be provided to facilitate short sales or deeds in lieu of foreclosures for borrowers who fail to qualify for, or default under, modified loans. I hope that this has been helpful. Please feel free to contact us with any questions or if we can be of any assistance in refinancing your mortgage.