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Changing the Affordable Home Plan

It was a little over a year ago that President Obama presented the Making Home Affordable program. Struggling homeowners say that the package fell miserably short of helping them in their time of distress. It did very little to stop property foreclosures. By the end of 2009, 250,000 additional households joined the ranks of households currently slated for foreclosure.

The Big Four Very few households granted trial period modifications have moved to permanent modification of their mortgage loans. In most instances, the trial period extended far beyond the three months that the program provides. This situation results in the accumulation of unpaid portions of the mortgage payment as well as late fees, penalties and default notices.

The President has modified this loan modification program once again in an effort to obtain compliance from the lenders, especially the Big Four: Citi, Chase, Bank of America and Wells Fargo. The previous provisions under the Making Home Affordable program are still in effect. However, a new group of potential foreclosure homeowners will be covered by this modified plan.

TARP and the FHA Those targeted for assistance are homeowners who are unemployed and whose homes are valued or appraised as underwater mortgages. Lower monthly payments or a 3-6 month “time out” from loan payments could be allowed. The funding for this program is under the Troubled Asset Relief Program (TARP). The most important provision is that these new loans may be backed by the Federal Housing Administration (FHA).

The new initiatives will not be handed out indiscriminately. Decisions must balance awareness that not everyone can be helped and responsible, struggling homeowners receive first priority. The foreclosures that are preventable under this plan involve mortgage payments representing more than 31% of income and also have less than $729,750 as a principal balance. Unexpected financial hardship must exist and be verified.

Commitments From Lenders Incentives for lender follow-through under this plan are more solid and the many loopholes present in the previous program have been closed. The new program allows for additional government payments to the lenders whenever they are able to reduce the principal on a delinquent mortgage. Of course, one bank has already taken a stance on this issue. Bank of America did announce that they would reduce principal on underwater, adjustable-rate mortgages.

Borrowers no longer need to wait until they qualify on the basis of missed payments. They may receive federal assistance before a default occurs. Second mortgages are now included in this modification update. The previous plan did not address this issue. As a result, homeowners who were current on a modified first mortgage could still be subject to foreclosure if there is a default on their second mortgage. Citi, Chase, Bank of America and Wells Fargo have committed to participation in 2MP, the second mortgage government assistance program.

Reaching the Goal Making Home Affordable is still subject to public scrutiny, but it aims to slow the foreclosure crisis. If the lenders stick with their commitment to modify second mortgages, President Obama’s modified modification program will do its job and slowing the foreclosure rate could actually be our new reality.