Foreclosure Plan 3-09

Obama Unveils Homeowner Affordability
and Stability Plan

'The government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it'.
- Ronald Reagan

There are 2 specific programs to help keep borrowers in their homes.

The Home Affordable Refinance

The Home Affordable Refinance was presented to allow those borrowers who are making their payments on time the opportunity to refinance to a lower rate even if their home is slightly underwater. To qualify for this program your loan MUST BE owned or guaranteed by Fannie Mae or Freddie Mac (FNMA/FHLMC).

To find out if your loan is owned by either entity you may call or go online at:

Fannie Mae: 1-800-7FANNIE (8am to 8pm EST) http://www.fanniemae.com/homeaffordable

Freddie Mac: 1-800-FREDDIE (8am to 8pm EST) www.freddiemac.com/avoidforeclosure

The basics of this program are as follows:

· You must be current

· Your 1st mortgage must be 105% or less of current market value

· If you have a 2nd mortgage, the lender MUST AGREE to subordinate

· If original loan DID NOT require mortgage insurance - new loan will not require mortgage insurance

· If original loan DID require mortgage insurance - new loan will require mortgage insurance at the same amount of coverage

· Streamlined Income and Appraisal requirements as determined by FNMA/FHLMC

· Discounts on Loan Level Price Adjustments based upon credit score and LTV

· If your loan is owned by FHLMC – YOU MUST CONTACT YOUR CURRENT SERVICER for refinance options

· If your loan is owned by FNMA – You can contact any FNMA approved origination entity

· This program is available for all types of loans, Primary Residences, Second Homes and Investment Properties. The caveat is that the original loan must be the same type of loan as the new refinance. For example if the original loan was done as a primary residence, the loan will only qualify if it is still a primary residence. If it was initially originated as an investment property, the new refinance would then qualify as an investment property.

Pricing is not yet available for this product, nor do we know how the secondary market will respond to this option. This program will not be available for Fannie Mae until after April 4, 2009 and borrowers will need to contact their servicers for specifics dates for Freddie Mac owned loans.

The Home Affordable Modification Program (HMP)

Under the HMP, servicers will use a uniform loan modification process to provide eligible borrowers with sustainable monthly payments for all eligible 1-4 unit owner-occupied properties owned by Fannie Mae or Freddie Mac and MBS pool mortgages guaranteed by Fannie Mae or Freddie Mac. Servicers are also allowed to employ this same process to their other portfolio and non-guaranteed mortgages and receive the incentives, but will not be offered a “Safe-Harbor” for not complying with the underlying contracts issued for “other” mortgage backed securities.

Who is Eligible:

· 1st Mortgages currently owned by FNMA or FHLMC

· Must be owner-occupied, 1- to 4- unit, including condos, coops, eligible manufactured homes, and conforming jumbo mortgages

· Mortgages for properties that are abandoned, vacant, or condemned are not eligible

· Mortgages may be previously modified, but can only be modified once under the Home Affordable Modification Program

· Eligible borrowers must provide affirmation of financial hardship and proof of current income

· Borrowers are still eligible if they are in active bankruptcy

· Borrowers may be in foreclosure

· Any foreclosure action will be temporarily suspended while borrowers are considered for foreclosure prevention options unless… the Servicer has completed efforts to contact a borrower and has determined

(1) the borrower has not responded or

(2) the borrower does not have the capacity or willingness to participate in the program.

· Loans where underwriting can create a 1st mortgage housing payment of 31% of household income through acceptable steps (Principal, interest, insurances, taxes, homeowner/condo association fees, and escrow shortages- PITIAS)

· Borrowers must successfully complete a three-month trial payment period, during which they will be required to pay the estimated new monthly payment

· Servicers enter into a workout/forbearance plan with the borrower during the trial period, followed by a modification agreement upon successful completion

How will Lenders Modify?

· Take Borrower’s Gross HOUSEHOLD Income and times it by 31%

· Follow the Modification Steps

Step 1.

Calculate New Unpaid Principal Balance:

Principal Balance + Escrow Shortages + Arrearages = Unpaid Principal Balance (UPB)

Step 2.

Calculate a new monthly payment:

Use the new UPB, the current note rate on the mortgage and the remaining term

* If an affordable payment is achieved, the interest rate will fix permanently at the current note rate – if not continue

Step 3.

Reduce the interest rate in decrements of 0.125 percent to no lower than 2.0 percent

**If the modified interest rate is below the market rate, the rate will remain fixed for five years. In the sixth year, the interest rate will be subject to annual increases of no more than 1 percent per year, not to exceed the lesser of the fully indexed rate at the time the loan was originated or the market rate at the time the modification documents are prepared.

Step 4.

Extend the amortization term month-by-month up to 480 months

Step 5.

Forebear principal to no less than 100% of current market value:

***Deferred principal will not be subject to interest and requires a balloon payment due upon sale, payoff or maturity. Deferred principal will be non-interest bearing and non-amortizing.

Step 6.

If a PITIAS-to-income ratio of no less than 31 percent cannot be achieved, the borrower does not qualify for this program.

Example:

Current 1^st Mortgage: $300,000 on 5 year ARM interest only at 5.75% opened 36 months ago

Current Value: $225,000

Current Income: $3500/month

Current Market Rate: 5.25% 30 year fixed 31% of Income = $1085.00

Step 1.

Borrower owes $300,000 plus 3 months of back payments of $4312.50 plus late fees (late fees automatically eliminated)

New Unpaid Principal Balance: $304,312.50

Step 2. New amortized payment = 5.75% for remaining 324 months equals $1851.64

Does Not equal 31%

Step 3. Reduce interest rate by .125% until 2.0% or until 31% of income is achieved

2% interest rate = $1216.30 – Does not Equal 31% (interest rate to remain at 2.0% for 5 year then step up 1% annually until 5.25%)

Step 4. Extend amortization month by month up to 480 months

$1085 payment is reached at 31.5 year amortization – Modification Qualifies with determined hardship Incentives

· Borrowers who remain current on their payment will receive a principal reduction of up to $1,000 per year for five years

· Servicers will receive money for each eligible modification they establish, and incentives of up to $1,000 each year for three years as long as a borrower stays current on their loan

· Incentives accrue monthly based on timely payment and are awarded yearly. The payment of incentives will be forfeited should the borrower become 90-days or more delinquent at any time

· Modifications under program available to any first lien up to $729,750

· There are incentives available for servicers to extinguish 2nd lien debt they may hold

· Additional Incentives to servicers to facilitate short-sales AND deed-in-lieu's for loans not qualified for program

As you can see, it is not a perfect solution but one that may allow certain homeowners the opportunity to stay in their homes. Remember that in 2006 only 53% of home loans originated were guaranteed or purchased by FNMA or FHLMC. If considering the modification route, the servicer will first determine if the hardship is temporary or long-term to determine first course of action. Also, your customers MUST CONTACT their servicer to participate in the Home Affordable Modification Plan.

President Obama unveiled his plan to help stabilize the housing market and keep millions of borrowers in their homes.

The Homeowner Affordability and Stability Plan includes two initiatives to help struggling homeowners. One is a refinancing program for homeowners with less than 20% equity in their homes, or who owe more than their home is worth. The second program attempts to lower monthly payments for homeowners at risk of losing their home. In addition, the plan includes a third initiative to support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.

Many of the plan’s details are still being worked out and will not be announced until March 4, here is an overview of the plan’s main components.

Refinancing Initiative
Under current rules, those families who own less than 20% equity in their homes have a difficult time refinancing and taking advantage of the historically low interest rates. Therefore, the refinancing initiative in the new plan provides refinancing help for homeowners with less than 20% equity in their homes or who owe more than their home is worth. This initiative is open to homeowners who have conforming loans which are guaranteed by Fannie Mae and Freddie Mac, and who owe up to 5% more than their home is worth.

According to the plan, “credit-worthy” or “responsible” homeowners can refinance their mortgage into a 30- or 15-year, fixed-rate loan based on current market rates. The refinanced loan, however, cannot include prepayment penalties or balloon payments. For many families, this low-cost refinancing may help reduce their mortgage payments by up to thousands of dollars per year.

As with the rest of the plan, details about this initiative will be released at a future date—including what, if any, credit score requirements will be included.

Stability Initiative
This initiative aims at providing help to individual families as well as entire neighborhoods by helping reduce foreclosures and stabilize home prices. It is intended to help homeowners who are struggling to afford their mortgage payments, but cannot sell their homes because prices have fallen significantly.

The goal of this initiative is simple: “reduce the amount homeowners owe per month to sustainable levels.” To accomplish this, lenders are encouraged to lower homeowners' payments to 31 percent of their income by lowering their interest rate to as low as 2% or by extending the terms of the loan. In addition, lenders can also lower the principal owed by the borrower, with Treasury sharing in the costs.

Homeowners who are current on their mortgages but are struggling can still apply for this program. As such, this is one of the few programs designed to help homeowners who may face delinquency soon, but are current at the moment.

Since the focus of this initiative is on helping families and neighborhoods, investment properties do not qualify. This initiative also includes a number of additional elements and incentives that benefit homeowners and lenders alike, including:

Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.

Supporting Low Mortgage Rates
As part of the Homeowner Affordability and Stability Plan, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability. This portion of the plan will use using funds already authorized in 2008 by Congress for this purpose.

The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.

Again, the government plans to unveil the final details of the plan on March 4, 2009. For now, you can download a sheet of common Questions and Answers produced by the government at: www.treas.gov/initiatives/eesa/homeowner-affordability-plan/ConsumerQA.pdf

I will continue monitoring the plan as new information becomes available. If you have any questions or would like to discuss how this may specifically impact you, I’d be happy to sit down with you. Just call or email me to set up an appointment.

The main salient points for a Borrower to “qualify” that are known at this point are:

1) Must be a Mortgage currently owned by Fannie Mae or Freddie Mac (most recent estimates in AZ put that market share at +-19%)

2) Must be an Owner-Occupied Primary Residence.

3) A current Appraisal will be required and the new proposed 1^st Lien must not exceed 105% of the current appraised value – including any fees associated with the transaction.

4) A qualifying debt-to-income ratio will be targeted at a Maximum of 38% - with possible Government assistance to subsidize a rate buy-down to target a 31% maximum debt-to-income ratio.

5) Borrowers that are current but based on qualifications would not meet the above DTI requirements may be considered if they are deemed to be in “imminent danger” of defaulting – no details on how that is quantified until March 4^th.

Here are some of the major concerns in the Arizona Real Estate market that the Plan DOES NOT address:

1) Clients with a Mortgage that is NOT owned by Fannie Mae or Freddie Mac

2) Clients that have a 1^st Lien balance that exceeds $417,000 (Jumbo Borrowers)

3) Clients that have severe negative equity that would prohibit them from meeting that 105% loan-to-value threshold – which would be most Clients that purchased or Equity withdrawal refinanced between 2004 – 2007.

4) Clients that own Second Homes, Investment Properties or Lot Loans

5) Clients that have lost their jobs and cannot show sufficient income

6) Clients that have seen a severe reduction in income that would prohibit them from qualifying under the debt-to-income guidelines.

In summary, it is solely my opinion that this Plan may assist more homeowners than its predecessors = 1) FHA Secure and 2) Hope For Homeowners, however, it still may be limited in scope and effectiveness for many Arizona homeowners.

Questions and Answers for Borrowers about the Homeowner Affordability and Stability Plan from the U.S. Department of Housing and Urban Development.

Borrowers Who Are Current on Their Mortgage Are Asking:

1. What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.

2. I owe more than my property is worth, do I still qualify to refinance under the Homeowner Affordability and Stability Plan?Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.

3. How do I know if I am eligible?Complete eligibility details will be announced on March 4th when the program starts. The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.

4. I have both a first and a second mortgage. Do I still qualify to refinance under the Homeowner Affordability and Stability Plan?As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan. Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage.

5. Will refinancing lower my payments?The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan. Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments. Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate. These borrowers, however, could save a great deal over the life of the loan. When you submit a loan application, your lender will give you a “Good Faith Estimate” that includes your new interest rate, mortgage payment and the amount that you will pay over the life of the loan. Compare this to your current loan terms. If it is not an improvement, a refinancing may not be right for you.

6. What are the interest rate and other terms of this refinance offer?The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment. All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate. The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender. Interest rates may vary across lenders and over time as market rates adjust. The refinanced loans will have no prepayment penalties or balloon notes.

7. Will refinancing reduce the amount that I owe on my loan?No. The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans. Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe. However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.

8. How do I know if my loan is owned or has been securitized by Fannie Mae or Freddie Mac?To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible to be refinanced, you should contact your mortgage lender after March 4, 2009.

9. When can I apply?Mortgage lenders are accepting applications after the details of the program were announced on March 4, 2009.

10. What should I do in the meantime?You should gather the information that you will need to provide to your lender after March 4, when the refinance program becomes available. This includes:· information about the gross monthly income of all borrowers, including your most recent pay stubs if you receive them or documentation of income you receive from other sources· your most recent income tax return· information about any second mortgage on the house· payments on each of your credit cards if you are carrying balances from month to month, and· payments on other loans such as student loans and car loans.

Borrowers Who Are at Risk of Foreclosure Are Asking:

1. What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments?The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

2. Do I need to be behind on my mortgage payments to be eligible for a modification? No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.

3. How do I know if I qualify for a payment reduction under the Homeowner Affordability and Stability Plan?In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final eligibility will be determined by your mortgage lender based on your financial situation and detailed guidelines that will be available on March 4, 2009.

4. I do not live in the house that secures the mortgage I’d like to modify. Is this mortgage eligible for the Homeowner Affordability and Stability Plan?No. For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible. If you used to live in the home but you moved out, the mortgage is not eligible. Only the mortgage on your primary residence is eligible. The mortgage lender will check to see if the dwelling is your primary residence.

5. I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible?Yes. Mortgages on 2, 3 and 4 unit properties are eligible as long as you live in one unit as your primary residence.

6. I have two mortgages. Will the Homeowner Affordability and Stability Plan reduce the payments on both? Only the first mortgage is eligible for a modification.

7. I owe more than my house is worth. Will the Homeowner Affordability and Stability Plan reduce what I owe?The primary objective of the Homeowner Affordability and Stability Plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Lenders are likely to lower payments mainly by reducing loan interest rates. However, the program offers incentives for principal reductions and at your lender’s discretion modifications may include upfront reductions of loan principal.

8. I heard the government was providing a financial incentive to borrowers. Is that true?Yes. To encourage borrowers who work hard to retain homeownership, the Homeowner Affordability and Stability Plan provides incentive payments as a borrower makes timely payments on the modified loan. The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.

9. How much will a modification cost me?There is no cost to borrowers for a modification under the Homeowner Affordability and Stability Plan. If you wish to get assistance from a HUD-approved housing counseling agency or are referred to a counselor as a condition of the modification, you will not be charged a fee. Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance.

10. Is my lender required to modify my loan?No. Mortgage lenders participate in the program on a voluntary basis and loans are evaluated for modification on a case-by-case basis. But the government is offering substantial incentives and it is expected that most major lenders will participate.

11. I’m already working with my lender / housing counselor on a loan workout. Can I still be considered for the Homeowner Affordability and Stability Plan?Ask your lender or counselor to be considered under the Homeowner Affordability and Stability Plan.

12. How do I apply for a modification under the Homeowner Affordability and Stability Plan?You may not need to do anything at this time. Most mortgage lenders will evaluate loans in their portfolio to identify borrowers who may meet the eligibility criteria. After March 4 they will send letters to potentially eligible homeowners, a process that may take several weeks. If you think you qualify for a modification and do not receive a letter within several weeks, contact your mortgage servicer or a HUD-approved housing counselor. Please be aware that servicers and counseling agencies are expected to receive an extraordinary number of calls about this program.

13. What should I do in the meantime?You should gather the information that you will need to provide to your lender on or after March 4, when the modification program becomes available. This includes· information about the monthly gross income of your household including recent pay stubs if you receive them or documentation of income you receive from other sources· your most recent income tax return· information about any second mortgage on the house· payments on each of your credit cards if you are carrying balances from month to month, and· payments on other loans such as student loans and car loans.

14. My loan is scheduled for foreclosure soon. What should I do?Contact your mortgage servicer or credit counselor. Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower’s eligibility. We support this effort.

WJ Bradley Mortgage Capital Corporation - 9237 East Via de Ventura #100 - Scottsdale, AZ 85258
Office Phone: (602) 432-6388 Fax: 480-421-1160 E-Mail: dean@teamdean.com

Arizona Mortgage Banker # BK-0903998