Last week (on March 26, 2010) the federal government announced a new program to help the unemployed and those who are already “underwater” with loans that are bigger than the value of their homes. This expanded program of the federal government aims to better assist struggling homeowners who have been hit by the economic crisis. The main push of this expanded program is to address the decline in property values by requiring banks to consider reducing loan balances.
For homes that are underwater
Under this expanded program, the government is offering additional incentives for lenders to reduce the principal. Reduction in principal is something that lenders have been very reluctant in doing.
In order to qualify, your home will need to be worth at least 15 percent less than the value of your first mortgage. Even if a homeowner’s mortgage has already been modified to lower the interest and monthly payments, the homeowner may still be eligible.
The homeowner has to live in the home, have a mortgage under $729,750 and have mortgage payments more than 31 percent of his gross monthly income, in order to qualify for this new program.
The principal reduction will take place in three equal amounts over the course of three years but only if the homeowner makes the mortgage payments on time.
For the unemployed
The help unemployed homeowners, lenders will be required to offer at least three, and up to six, months of reduced payments. During that period the unemployed homeowner will not have to pay more than 31 percent of his monthly income towards the mortgage.
To qualify for this program, the homeowner live in the home, and the mortgage balance has to be less than $729,750 with monthly payments that re more than 31 percent of the gross monthly income of all borrowers who signed the mortgage. If there are 2 borrowers in a household and one person works while the other is unemployed, they will not be eligible if the mortgage payment is less than 31 percent of the total household income.
To be eligible, the homeowner has to prove that he is receiving unemployment benefits and must ask for help within 90 days of any late payments. The reduced mortgage payments will revert to the regular amount once the homeowner gets a job before the three to six month period ends.
Lenders are given incentives by the federal government to participate in this expanded program but they are not required to do so. It is yet unclear if these incentives are enough to tempt lenders to participate; or, how many of them will do so. Some lenders may already have a program in place while the other programs may not begin until fall. Lenders are supposed to contact people who are eligible for help, but it is probably in the homeowner’s own interest to take the initiative to call their own lenders for updates.
(DISCLAIMER: material presented above is intended for informational purposes only. It is not intended as professional advice and should not be construed as such. Rey Tancinco is a partner at Tancinco Law Offices, a professional corporation with offices in San Francisco, Vallejo, and Manila. The law office website is at: tancinco.weareph.com/old. Rey Tancinco can be contacted at (800) 999-9096 or (415) 397-0808 or via email at: attyrey@tancinco.com
