THE MORTGAGE PROGRAM, FOR DUMMIES

For those of you close to someone whose home is under water (or is that upside down?) here’s an excellent Q & A article from the San Jose Mercury (thanks Mike). It answers some basic questions about the new federal legislation designed to stem the tide of looming home foreclosures. For some real life examples of how the program works out here’s a good NY Times article.

In a few words, any chance of getting a home loan renegotiated begins with the stipulation that you must be living in the home that's tied to the mortgage you're renegotiating. There are two type of programs, the Home Affordable Refinance (HAR) program and the Home Affordable Modification (HAM) program. Both involve either reducing interest rates and, in some cases, the principal.

Your chances of getting your home loan refinanced under the HAR are GOOD/EXCELLENT if:

• Fannie Mae or Freddie Mac hold your loan.
• You have no equity and/or owe up to 105% of your home's value.
• You are considered a “strong borrower” or a good risk (you have a good job).

If the above doesn’t work, you MIGHT be able to negotiate a refinance under HAM if:

• You are a “strong borrower” who owes less than $729,750.
• You’re payments (taxes, insurance, etc.) currently eats up more than 31% of your income.
• You've had, or anticipate, a change in your financial situation (divorce, job change, etc.) .
• You have a lender that’s willing to renegotiate, which may mean credit counseling. This will be a hard sell if you are seriously under water (or are working with Countrywide).

You WON’T be able to get your home refinanced if:

• Your current home loan is for more than $729,750.
• You’ve had a significant jolt to your income and/or finances.

While this post is designed to provide information, I feel obligated to say the following (it is my blog) . . .

The crime in all of this is that Countrywide – which was one of the earliest chump companies to stick out its hand for a bailout, after dumping their toxic debt products on the U.S. taxpayer – is increasingly saying “No” to homeowners in trouble. They’re doing this at the same time that it’s former president,Stanford Kurland, is making a killing purchasing delinquent home mortgages for his new company (as I noted here almost a year ago), some times for pennies on the dollar.

Kurland was forced out of Countrywide for helping run the company into the ground, but not before he cashed out hundreds of millions in stock right before Countrywide took a hit in the stock market. Now he’s going to get rich(er) picking up the pieces. I don’t know if Kurland has a conscience, but I have to think there’s a special place in Hell for him (if you believe in that kind of thing).

On the (potentially) bright side for those left out of HAR and HAM, the House is going to discuss a bill that could give bankruptcy judges the power to change mortgage terms on primary residences, while protecting loan-servicing companies from lawsuits by investors ... many of whom recklessly “invested” anticipating big and forced payouts on adjustable rate mortgages, CDO buyouts, and CDS guarantees.

Stay tuned.

- Mark

P.S. Here's an excellent interactive from the NY Times which also explains the mortgage programs (click on the piece to expand).