Meltdown 101: Will The New Housing Aid Help Me?

By J.W. ELPHINSTONE and ALAN ZIBEL, AP Real Estate Writers

Between the $75 billion foreclosure plan President Barack Obama revealed on Wednesday and the $787 billion economic stimulus he signed a day earlier, the government is promising a range of programs aimed at getting new help to homeowners.

But not everyone who needs help will get it. Homeowners who are severely “under water” in their mortgages – owing more than the value of their homes – won’t get anything.

So who does qualify for the assistance? What exactly will they get – and when will they get it?

Here are some questions and answers about the latest round of aid for homeowners.

A: Homeowners who are behind on their mortgage payments or who are struggling to keep current may qualify for a mortgage modification under the Homeowner Affordability and Stability Plan that Obama unveiled Wednesday.

To qualify, the house must be your primary residence, your mortgage payment must be greater than 31 percent of your monthly gross income and your loan mustn’t exceed current Fannie Mae and Freddie Mac loan limits, which vary by region and max out at nearly $729,750.

Owners of two-, three- and four-unit properties are eligible as long as they live in one unit as a primary residence. Only first mortgages are eligible for a modification.

More detailed requirements will be available March 4.

A: Borrowers who are current on their mortgages but can’t refinance into lower interest-rate loans because their homes have fallen in value are eligible to refinance into a 30- or 15-year, fixed-rate loan under the plan, but only if their loan is held by mortgage finance companies Fannie Mae or Freddie Mac.

To qualify, homeowners can’t owe more than 105 percent of their home’s current value on their first mortgage. For example, if your home is worth $100,000, your first mortgage can’t exceed $105,000.

Borrowers with a second mortgage are eligible as long as their first mortgage isn’t more than 105 percent of their home’s value. The value of your property will be determined after you apply to refinance.

Skeptics say it’s going to be difficult for borrowers to figure out whether their loan is held by Fannie or Freddie. “I’m not sure people are always going to get a straight answer,” said Bert Ely, a banking industry consultant in Alexandria, Va.

A: Under the economic stimulus plan that Obama signed Tuesday, first-time homebuyers who purchase a home between Jan. 1 and Dec. 1 will be eligible for a tax credit of 10 percent of the value of the home, up to $8,000.

Homeowners don’t have to pay back this credit over the next 15 years, the way they had to with the $7,500 tax credit enacted last summer. However, homebuyers would have to repay the credit if they sold their homes within three years.

First-time buyers are defined as those who haven’t owned a house for at least three years.

A: Homeowners also can get a tax credit of up to $1,500 by making their homes more energy-efficient this year or next. Many projects qualify, such as installing energy-efficient windows, doors, furnaces or air conditioners, or adding insulation.

Homeowners can get back 30 percent of their expenses, up to $1,500.

A: The Obama administration is working with lawmakers to pass a bill that will allow bankruptcy judges to modify the terms of primary home loans in court.

The lending industry is fighting this plan, arguing that it will make lending a risky proposition in the future. But with support mounting, the industry’s efforts are primarily focused on limiting the scope of the bankruptcy proposal, rather than blocking it completely.

A: The refinancing and loan modification programs start March 4. The first-time homebuyer tax credit is in effect from the first of the year through the end of November. The “green” home tax credit applies to energy-efficient improvements made through 2010.

A: If you’re interested in refinancing or applying for a loan modification, collect all necessary documents to give to your lender.

These include your most recent pay stubs and/or other documents detailing the income you receive, your most recent tax return, information about your second mortgage if you have one, payment information on your credit cards if you carry a monthly balance and payment information on all other loans, like student loans and car loans.

A: Contact your mortgage servicer or mortgage lender. Many lenders said they will postpone foreclosure sales on home loans that could qualify for the modification.

(Copyright 2009 by The Associated Press. All Rights Reserved.)