Wednesday, March 25, 2009

Mortgage Bailout

Will the new Emegency Economic Stabilization Act work? The governemnt has just passed a new act to help American homeowners save their homes and lower their monthly mortgage payments.

Their are two sides to this new legislation. Loan Modifications and mortgage refinances.

Loan Modifications:Here is how the plan works:

Mortgage companies will be reviewing requests from current customers who need to lower their monthly mortgage payments. The goal is to reduce your front end debt ratio to 31%. Your front end ratio is your first mortgage payment(principle, interest, taxes, insurances, mortgage insurance) divided by your gross monthly income.

If your current front end raio is higher than 31% then the mortgage compnay will try a number of things to to reduce your monthly payment until it reached 31%.

1. They will reduce your interset rate to a low as 2%...if your front end ratio is still to high then

2. They will increase the term of your loan up to 40 years...if your front end ration is still to high then

3. They will defer some of the principle on your loan to the end of your mortgage term. This will create a balloon payment at the end of your mortgage term...if the front end ratio is still too high then

4. They can do priciple reduction on your loan. This means they will waive some of the balance on your loan. This principle reduction will not have to be repaid.

Check out these steps in further detail at http://www.treas.gov/initiatives/eesa/.
Click on the bullets points under Making Home Affordable.

The other side of this legislation is mortgage refinances:

The people who qualify for this will be:

1. Loans closed before January 1st, 2009

2. Owner occupied properties

3. Loan to value of 105% or lower - the big change is here. Most people only qualify for a better rate if they are at 80% of lower right now.

Both of these programs offer incentives to the mortgage compnies to participate in the program as well as incentived to the homeowners who keep their payments current.

You can read some other articles regarding this reform at http://money.cnn.com/2009/03/04/news/economy/guidelines/index.htm

This program was just passed on March 4th so it may take some time to get up and running with the mortgage companies. Definitely something you want to look into.Thoughts or additions?

Check out http://www.thebriteway.com/. This compnay can help you navigate your way through refinancing or purchasing a home.

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