This act expands on a previous one, Hope for Homeowners, that essentially failed to help distressed homeowners. Because of the many administrative problems and stringent requirements only very few homeowners were about to refinance high-interest rate home loans for a 30-year fixed loan that was backed by the Federal Housing Administration. The previous law was intended to assist around 400,000 American homeowners but failed to do so. This new piece of legislation eases the previously tough eligibility requirements. It also promises to lower the cost of loan modification for both borrowers and lenders. It is hoped that these improvements will help the housing market, weighted down by foreclosures and distressed home sales, recover over the next 2 years

There is still a lot of red tape to deal with when seeking to negotiate a new home loan with a lender, especially when one is behind on payments or significantly ‘underwater’, meaning that the homeowner owes more on a mortgage than the home is currently worth on the housing market. Many people who’re seeking a loan modification due to being stuck with unaffordable house payments have reported considerable backlogs and confusing submission rules. Will the Helping Families Save Their Homes Act improve this situation? It’s too early to tell at this point. One bright point though is the related Making Home Affordable program which has been able help around 50,000 homeowners obtain more affordable terms for their mortgages.

It is hoped that these improvements in home loans will help slow the supply of foreclosed homes since this, in turn, tends to lower prices on everyone’s home. This year may see as many as 2.5 million foreclosures and could potentially negatively impact as many 20% of all US homeowners within the next 2 years if improvements in the market don’t occur quickly. It is hoped that this new program will kick in quickly and reverse this trend.

The bill failed to include a measure that would have allowed bankruptcy judges to modify the terms of a home loan to reduce a homeowner’s monthly payments should they go into bankruptcy. Industry pressure prevented this part of the measure. However, the Helping Families Save Their Homes Act does include a provision to protect renters when their landlord is foreclosed on. Under this new law, renter’s leases must still be honored and, should they be on a month-to-month basis, the law requires that they be given a minimum of 90 days notice. Another key provision of the law is that loan servicing companies are protected from investor lawsuits, aka a “safe harbor”, when they modify loans to prevent foreclosure under the government loan modification guidelines.

If you are seeking a mortgage modification for yourself, make sure that you pick the best option for you. There are scams out there so be careful. Also be aware that some modification programs simply add missed payments to the principle of the loan, ultimately making the home loan less afforable. Some homeowners who have had this kind of modification found themselves once again facing foreclosure when new, higher, house payments kicked in a year or so later. Make sure that you work with a HUD-approved credit counselor in this difficult process.

Another common problem is that loan service companies are swamped with loan modification requests from distressed homeowners seeking help. Many do not have the staff to handle the volume of requests and either don’t answer phones or use cheap outsourced labor from outside the US. Also, since it usually requires several calls to get a loan modification processed, this often means starting over from scratch several times. While this is frustrating, make sure that you are prepared to assist the customer service representative get up to speed quickly on your case. Don’t assume that they have everything they need handy.

If you need help in adjusting your mortgage I encourage you to investigate your options under the Helping Families Save Their Homes Act. It may just help you in your foreclosure prevention efforts.

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These second lien mortgage payments were common during the housing boom a few years ago. These loans allowed borrowers to buy a home with no down payment by adding a second lien. Unfortunately, many of these loans are failing to due the recession and the ongoing problems in the housing and credit markets. Second lien mortgages are particularly troublesome since they typically carry a higher interest rate than the primary home loan. The idea behind the new Treasury plan is to use cash incentives to mortgage investors to encourage them to either reduce the interest rate on these loans or to simply consider them paid in full.

Previously, second liens weren’t considered in modification plans. This gap meant that there was some difficulty in renegotiating some loans under the ‘Hope for Homeowners’ plan. The idea of the new rescue plan is to bring the interest rate of the second lien in line with the primary mortgage interest rate with the hope of making the loan payments more affordable for borrowers. The Obama administration is hoping that this plan will reduce the cost of homeownership for up to 9 million homeowners who’re struggling to make their monthly mortgage payments.

These changes and some others are expected to improve the performance of the Hope for Homeowners plan. So far, the performance has been dismal and only a few homeowners have had loans modified effectively. The Department of Housing and Urban Development (HUD) hopes that this new plan that will offer mortgage holders thousands of dollars for each home loan that they successfully modify will improve the effectiveness of the program and help it meet its goal of keeping people in their homes. HUD also announced that they would be working to reduce the bureaucratic red tape involved in securing a home loan modification through the program.

It is hoped that the biggest sticking point, second liens which are sometimes called ‘piggyback loans’, will be adequately addresses by these changes. Previously there was little incentive for holders of these second mortgage loans to cooperate with a loan modification plan. The Obama adminstration is banking on these new policies to improve the situation since these piggyback loans are attached to around half of all troubled mortgages. It was common for borrowers who had poor credit scores, who did not have proof of income or who couldn’t fully qualify for a loan to take out these second liens. But, because previously there was no incentive for second loan holders to negotiate a mortgage modification plan, this made it difficult for many people to get the house payment reduction they needed. The new plan should help get rid of this oversight in the home loan modification program.

The way the plan is supposed to work is that mortgage companies would get an incentive of $500 for each loan they modified and then $250 a year for three years provided that the borrower doesn’t default on the home loan. The borrower themselves would get up to $1000 over a 5 year period to apply to the principal balance of the primary mortgage. There are some additional backend incentives to help mortgage companies recover expenses as well, such as a $2500 payment for participation in the plan.

The Obama administration has been disappointed with the performance of the plan so far. The ‘Hope for Homeowners’ plan was intended to help around 400,000 homeowners who held troubled mortgage loans replace risky sub-prime loans with traditional 30-year fixed rate mortgages with reasonable interest rates. However, the plan hasn’t worked well since the plan, as it was originally implemented, was financially unattractive to banks and it was difficult for homeowners to qualify. In fact, only one loan was modified under this plan between January and March. It is hoped that these new incentives, especially in the area of second lien mortgages, will help improve the program so that it assists more homeowners in trouble.

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