Government offers mortgage help

Homeowners who want to refinance their mortgage or need help to obtain a loan modification may be cheered by several recent federal government announcements.

The Federal Reserve said it will keep the benchmark federal funds rate at zero to 0.25 percent. The low target rate is good news for borrowers who have an adjustable-rate mortgage (ARM) or want to refinance, even though the Fed doesn't directly control the interest rates that borrowers pay on their loans.

These low interest rates may not be fleeting. The Fed said it expects "exceptionally low" rates to continue for "an extended period" due to current economic conditions. That's good news for buyers who need time to shop for a home and a loan.

The Fed also reiterated its plans to buy up to $1.25 trillion of mortgage-backed securities, $300 billion of Treasury securities and $200 billion of other debt instruments this year. These purchases are intended to "support to mortgage lending and housing markets," among other objectives, the Fed said in its statement.

Second loans to be modified

Meanwhile, the U.S. Treasury announced a new Second Lien Program that will lower the payment on some homeowners' second mortgages. This program is intended to help homeowners who are in danger of foreclosure qualify for a loan modification through the Making Home Affordable program. Second mortgages can create significant challenges in these situations.

The Making Home Affordable program also has a refinance component that's open to borrowers whose loan is owned or guaranteed by Fannie Mae or Freddie Mac. Through this program, homeowners may be able to refinance even if they owe slightly more than their home is worth.

A dozen or so lenders have signed formal agreements to offer the Making Home Affordable programs.

Loan principal may be reduced

The Treasury also announced a program that would require loan servicers to offer the existing Hope for Homeowners program to more borrowers who apply for the Home Affordable Modification program. Hope for Homeowners is a government program that helps to create equity for homeowners, so they can refinance into a new loan that's guaranteed by the Federal Housing Administration (FHA).

Home buyers score tax credit

For home buyers, the federal government offers an $8,000 tax credit. The credit can be taken by taxpayers who purchase a home between Jan. 1, 2009, and Nov. 30, 2009, and have not owned a home in the last three years. The credit does not have to be repaid and can be claimed on the taxpayer's 2008 or 2009 tax return. The credit is subject to income limits and is phased out for higher-income earners.



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