How the New Stimulus Bill Can Help Homeowners in Trouble

On February 18, 2009, President Obama signed the 2009 Homeowner Affordability and Stability Act.  Here are some of the key points that might help you in your current situation:

• The plan will provide low-cost refinancing to responsible homeowners who are currently unable to take advantage of historically low interest rates due to a falling housing market.  Typically, a refinance would require that a homeowner owe no more than 80% of the value of her home.  So if your home were valued at $100,000,  your mortgage would have to be $80,000 or less in order for a refinance to be considered.  That is no longer the case, so homeowners can qualify for a low-cost refinance and save money that they previously would have spent on their mortgage interest. 

• The Homeowner Stability Initiative is designed to assist at risk homeowners by securing a loan modification.  An 'at risk' homeowner is described as "anyone with high combined mortgage debt compared to income or who is "underwater" (with a combined mortgage balance higher than the current market value of his house)."

• A homeowner does not have to be behind in his payments to take advantage of this program. 

• Borrowers with high total debt also qualify if they agree to complete a government-approved consumer debt counseling course.

• Through the initiative, a lender can modify a homeowner's loan so that his mortgage payment is no more than 31% of his total income.  This will be done by lowering the interest rate and locking it in for five years.  The lender will receive $1,000 incentive for each loan they modify that conforms to these standards, so they will be motivated to work with homeowners.  For every month after the modification that the borrower stays current with his loan, the lender will receive up to $1,000 a year for up to three years.

• There is also an incentive to the homeowner for staying current on her loan: The initiative has provisions to reduce the principal balance on the mortgage loan by up to $1,000 per year for up to five years.

• Should a homeowner act on these measures and still have to file personal bankruptcy, the new initiative also states that a bankruptcy judge now has the power to develop an affordable plan for the homeowner to continue making payments.  This applies only to existing mortgages that conform to Fannie Mae and Freddie Mac loan limits.

With these options, homeowners now have a way to keep their homes instead of defaulting and ruining their credit, and lenders have incentive to work with homeowners to reach practical, sustainable terms.  The money is limited, however, so if you need this assistance, the sooner you contact your lender, the better.  Your lender will require some paperwork; the necessary documents are listed below.

1. Hardship letter.  This is simply a letter describing the situation that has caused you to no longer be able to afford your mortgage. 
2. Financial statement.  This is basically a budget sheet--one side should list all sources of income and the total.  The other side should list all household expenses, including all mortgage payments, and the total.  If at all possible, your expenses should not exceed your income.
3. Two months' bank statements.  This is to verify income and expenses.
4. Two pay stubs.  This is to verify income.
5. Two years' taxes.  Again, this provides verification of the information you've stated.

If you have these five things ready when you contact your lender, you'll be ahead of the curve and first in line to get a low-cost refinance or loan modification.  Best of luck!

Read more about the 2009 Homeowner Affordability and Stability Act.