President Bush and U.S. Treasury Secretary Henry M. Paulson Jr. announced a "streamlined" foreclosure relief program that could help some homeowners refinance adjustable-rate mortgages (ARMs) or take advantage of an interest-rate freeze that could protect them from higher payments for as long as five years.
According to the Homeownership Preservation Foundation, the plan could help as many as 1.2 million homeowners. But many homeowners currently struggling to avoid foreclosure may not be eligible under the plan’s qualification guidelines.
The criteria to qualify for assistance via the plan are as follows:
- The homeowner’s loan must be a subprime ARM that has an initial fixed-rate period of three years or fewer. (That includes so-called "2/28" and "3/27" loans.)
- The loan must have originated between Jan. 1, 2005 and July 31, 2007.
- The loan must be scheduled to reset for the first time between Jan. 1, 2008 and July 31, 2010.
- The loan must be for the borrower’s primary residence.
- The loan must be part of a securitized pool sold to investors.
Homeowners who meet the above criteria may qualify for assistance from their mortgage servicer, the company where they send their mortgage payments.
Essentially, the Bush administration plan has streamlined mortgage servicers’ guidelines for helping struggling homeowners. The aim is to allow these borrowers to get help faster. Based on the criteria above, as well as other factors such as payment history and credit score, borrowers may have different solutions available to them.
Different forms of relief available
Under the plan, mortgage servicers can help homeowners who meet the above criteria either refinance their ARM or obtain a five-year interest rate freeze on their current loan.
Keep in mind, a major caveat of the plan is that mortgage servicers are not obligated to follow the proposed guidelines for helping struggling homeowners.
The rate freeze will be available only to borrowers who don’t qualify for refinance. That includes homeowner’s who have less than 3 percent equity in their home, and who have a FICO score of 660 or below that has not increased by 10 percent or more since the loan was obtained.
Homeowners who don’t qualify for the rate freeze may be able to work out refinancing solutions with their mortgage servicer.
Call your mortgage servicer or new hotline for help
All homeowners should continue to make their mortgage payments on time and contact their lender or loan servicer as soon as possible if they believe they won’t be able to keep up with future payments.
Homeowners who aren’t able to discuss their situation with their lender or servicer should call a free national hotline and speak with a credit counselor. The hotline is financially supported by lenders and run by the Homeownership Preservation Foundation, a nonprofit organization that helps homeowners avoid foreclosure. The telephone number is (888) 995-HOPE. This foundation also offers online counseling at www.995HOPE.org.
Prior to calling, be prepared. Find all of your mortgage documents and have them on hand. Also, get your credit score and reports, income statements, and ideally, a recent appraisal of your house. If you find one or all of these documents missing, still call (888) 995-HOPE and get help today.