In a recent trip to Arizona, an epicenter of the distressed housing market, I picked up a newspaper to read that for the first time there are signs that the $75 billion federal housing program announced in February is beginning to help some Valley homeowners. In our Bend OR real estate we are still seeing astounding numbers of foreclosures, but there is hope that lenders are now working with borrowers and relief is in sight.
In early April housing counselors and mortgage brokers in Phoenix started to see lenders adjust the interest rates and even principal on loans so borrowers can afford their payments. Foreclosures fell across that city in March to their lowest level in a year. At the same time, more than 3,000 pending foreclosures were canceled.
President Obama unveiled his Homeowner Affordability and Stability Plan in mid February in Mesa, AZ, but for many weeks lenders were not following the plan's guidelines. Starting around April 1, the help homeowners need was finally materializing. Lenders were talking. And modifying, sometimes to rates of less than 4% for 5 years.
People facing foreclosure because their incomes have been reduced are supposed to be able to have their loan modified so that their payment accounts for no more than 31% of their income. The government is offering lenders $500 to $2,000 for every loan they modify to prevent a foreclosure. The length of a loan can be extended and the interest rate and even the principal can be lowered. Under a refinancing, only the interest rate is lowered, and the value of the home must be at least 105% of the loan, so many homes do not qualify for this relief.
The key for a loan modification is that you must have sufficient income to be able to afford a restructured payment plan. Therefore, the linchpin of the entire situation is that employment rates must improve, the sooner the better!
To check your eligibility, see MakingHomeAffordable.gov, a government website designed to help homeowners determine whether they qualify for a loan modification or refinancing.