Primer: Understanding the Obama Adminstration Housing Bailout

The Federal Government created a helpful website called www.makinghomeaffordable.gov/, which details the two loan programs, loan modification and refinance, to assist homeowners in reducing the mortgage interest rates.

Loan Modification

The first is a loan modification plan that reduces interest rates down to as low as two percent (2%) and/or forgives some of the loan principal. In order to qualify for this modification plan, the homeowner must:

(1) be an owner-occupant in a one to four unit property;

(2) have obtained the loan on or before January 1, 2009;
(3) have a mortgage payment (including taxes, insurance, and homeowners association dues) that is more than 31% of your gross (pre-tax) monthly income;
(4) have a mortgage payment that is not affordable, an unpaid principal balance that is equal to or less than $729,750 for one unit properties (there is a higher limit for two to four unit properties - consult your servicer); and
(5) have a mortgage payment that is not affordable, perhaps because of a significant change in income or expenses.

Refinance

The second loan refinancing program is tailored to assist homeowners who cannot currently refinance because they lost equity in their homes. Homeowners with more than one mortgage may still qualify for the refinance program. The basic requirements are that the homeowner is:

(1) current on mortgage payments;
(2) their current loan is owned or controlled by Fannie Mae or Freddie Mac;
(3) the amount owed on the existing first mortgage is about the same or slightly less than the current value of the house;
(4) the homeowner has sufficient income to support the new mortgage payments; and
(5) the refinance improves the long term affordability or stability of your loan.

To determine whether your loan is Fannie Mae or Freddie Mac backed, please contact the agencies by phone or web as follows:

Fannie Mae
1-800-7FANNIE (8am - 8pm EST)www.fanniemae.com/loanlookup




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

Homeowners should contact their mortgage servicer or lender and ask about the Home Affordable Refinance and Modification process. Please note that beginning April 4, 2009, borrowers whose loans are owned or securitized by Fannie Mae may also apply through any Fannie Mae approved lender. Nearly all major banks and mortgage brokers are approved to work with Fannie Mae. Ask the lender you choose if it is authorized to provide a Home Affordable Refinance.

- Maria Vijil Davis, Esq.

Stimulus Package Reaches Main Street

On Monday, March 16th, in an effort to recharge the economy (specifically the job market), the Obama Administration announced that the Treasury Department would purchase up to $15 billion in securities backed by Small Business Administration (SBA) loans in an effort to unfreeze the secondary market for SBA Loans.

This announcement is welcomed news to lenders and borrowers alike. It’s also likely to shift the talk away from the mismanagement of Federal funds and the scandalous behavior of business giants like AIG.

What does this mean for Lenders and Borrowers?

Increased Capital:
The bill will increase SBA lending to small businesses by allowing lenders to sell their existing loan portfolios on the secondary market and free up capital to make new loans.

Reduced Fees:
In addition to creating increased capital, the administration is proceeding with plans to eliminate fees for borrowers and reduce fees for lenders in its two signature small business lending programs (SBA 7(a) and 504).

Reduced Risk:
At present, SBA can guarantee up to 85 percent on loans up to $150,000, and up to 75 percent on loans greater than $150,000. The new bill allows SBA to raise its loan guarantee from the current levels to as much as 90 percent for some loans. Increasing the SBA guarantee percentage will encourage lenders to extend more capital to small businesses. With the reduced risk and additional capital, the Obama Administration believes that lenders and borrowers will use the funds to stimulate small business growth and create jobs.

Increased Accountability:
In an effort to track the bill’s effects and maintain accountability, the bill requires that lenders who received Federal bailout funds provide monthly figures on their small businesses lending. All other lending institutions must now report their small business-lending quarterly, rather than annually.

As new aspects of the bill emerge we will continue to examine the potential impacts on small business and commercial lending. So, stay tuned for future updates.

For more information about SBA loan programs please visit: http://www.sba.gov/ or contact Attorney Adam WP Goncalves at (617) 244-2665.