President Obama, recognizing the deep crisis in the American real estate market, has put the Making Homes Affordable (MHA) program into action. MHA was put into use in the early part of 2009. MHA focuses on granting financially strapped home buyers and their cooperating lenders the ability to readjust and refinance mortgages.
This should help home buyers reduce their monthly household expenses and become better equipped to retain their homes. The program will be available to homeowners, those who are new as well as those now ensconced, up until the end of January in 2012.
Economic recessions wreak a lot of havoc. Not the least being the sudden unemployment of thousands of individuals through no fault of their own. The loss of one, sometimes two, paychecks can lay waste to a household budget. Expenses are cut drastically, but even so the all important mortgage payment is in peril.
In hopes of putting the housing industry back on an even keel, the administration instituted MHA. Basically the plan is to fund MHA with $75 billion under the aegis of the Homeowner Stability Initiative. If successful, this money will result in mortgages being modified in hopes of keeping home buyers in their homes by preventing foreclosures for millions across the nation.
Inflated Prices and Deflated Requirements
The real estate boom in the middle of the last decade led many brokers to grant loans to individuals who were not quite ready for home ownership. These brokers were able to do this because of their ability to offer less expensive, but adjustable rate, mortgages. After the real estate bubble burst, interest rates went up and many home buyers found themselves suddenly paying outrageous monthly sums for housing.
Another casualty of the bust is that property prices plummeted and home buyers found themselves owing on mortgages much higher than the value of the property they were occupying. So home buyers got hit twice: Top-Heavy mortgages. Usurious monthly payments. Throw unemployment into that picture due to the recession, and the situation is pretty grim for many.
With an MHA loan modification, homeowners will be expected to pay only 31% of their pre-tax incomes every month. The industry standard is 33%. Five requirements must be met to initially qualify for MHA.
1) Present mortgage payments must exceed 31% of gross monthly income.
2) Fannie Mae or Freddie Mac must currently insure the mortgage.
3) Original mortgage must have been granted before January 1, 2009.
4) Unpaid principle on the mortgage must exceed $729,750.
5) Buyer must hold the property as primary residence.
Incentives for Lenders and Buyers
On top of offering home buyers relief, sticks and carrots are offered to the lenders as well. Lenders who successfully grant a home loan modification are eligible to receive $1,000 for each. Plus, they are granted $1,000 for each year, up to three years, for every year a buyer successfully maintains residence.
Home buyers also stand to benefit. They can be granted $1,000 each year they make full, on-time payments. This grant can last up to five years and results in the amount being taken off the principle each year. This reduction in principle is a great savings for home buyers.
Participation in the MHA program could be a tremendous windfall to any home buyer. For those suffering from the housing bubble burst and financial difficulties incurred by the recession, it could mean the difference between a roof over a family's head or homelessness. Thoroughly researching and comparing home loan modification companies is essential to finding the best fit for the beleaguered home buyers.
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