Foreclosures on the rise, bankers and homeowners scrambling to find solutions that would help keep people in their homes as well as lenders continuing to receive the loan payments on time. The Obama administration, through the US Treasury, developed the Making Home Affordable (MHA) program. With the adoption of this plan, the treasury looked to standardize some guidelines, define eligibility requirements, and create solutions that apply to the entire home loan lending industry.
The program provided a model that could be replicated nationwide. Keep in mind though the program only created guidelines so flexibility remained intact and the program could vary between regions and lenders. Your lender will probably have a system that meets the same goals of the MHA but may not be exactly as defined in the program.
Two forms of aid come to homeowners through the MHA program: loan modification and refinancing. Every homeowner may not qualify for a loan modification or refinancing under the program, and not all investors and lenders required to participate and follow the program's guidelines. While I'm writing this article the MHA program is voluntary but it may at some point become mandatory so be sure to check with your banker or mortgage company to see if the program is available. This assumes you meet eligibility requirements.
Refinancing your Mortgage Loan
The refinancing component of the MHA initiative is geared toward the distressed homeowner that has still been able to make their mortgage payments in full and on time but it is inevitable that they will not be able to pay on time for too much longer. It's the high risk loans such as adjustable rate mortgages and loans that are interest only that the refinancing component is designed to remedy. Specifically it seeks to shift the high risk loans into more conventional fixed-rate loans where the interest rate and mortgage payment will not continue to fluctuate. These are the homeowners that are not yet in trouble but will be shortly if something is not done to lower their monthly mortgage cost.
The MHA program understands that these homeowners are not in position to access low interest rates because their loan to value ratios are above typical levels that would allow them to qualify for a refinance loan. The part of the loan to value ratio that is the problem is the value side of the equation. It's the drop in property values of homes that puts individuals out of the range of acceptable risk for lenders to refinance their home loan. It's by making the lenders comfortable with making loans to individuals that have a high loan to value ratio that can keep the homeowner in his home by refinancing at a lower fixed rate and bringing their monthly mortgage payment down to where they can make their payments on time and in full.
The federal government, through the MHA program has offered monetary incentives to banks, mortgage lenders and borrowers for creating loan modifications that will result in affordable, reasonable payments and allow homeowners to keep their houses. The major program incentive is that the mortgage lender and the Treasury Department work together to reduce a homeowners' payment to a level no greater than 31% of gross household monthly income. The reason for this large investment by the federal government is to keep people in their homes and lenders recouping a larger portion of what they would lose if they did nothing but foreclose on the property. A win-win scenario in these times of dropping property values.