Wednesday, February 25, 2009

Foreclosure Help

Another good question from MSNBC's answer desk:

If my home is already in the foreclosure process, can the homeowner bailout help? Or is it too late?
Alicia O.

It’s not necessarily too late if you meet the criteria and your lender is willing to modify your loan. Many lenders have agreed to stop foreclosures already in progress until they have a chance to review them to see if the home can be saved with the help of the new plan.

Unfortunately, not everyone is going to be eligible for help. If you can’t show that you have enough income to cover even a modified loan, the plan can’t help.

The main provision of the plan is a series of financial incentives (payments) to lenders who agree to cut your monthly payment. The two most common ways to do this are to lower your interest rate to the current market rate or to stretch out your payments for 40 years. (You’ll still pay as much, you just get longer to do so.)

So if you live in the home backed by the mortgage you want to change, and if your current interest rate is much higher than the market rate (about 5.25 percent at this writing), you may be a good candidate for a new, more affordable loan. Even if you’re already in foreclosure.

The goal is to come up with a monthly payment that amounts to no more than 31 percent of your monthly income. If, after cutting your rate and stretching out your payments, you still don’t have enough income to meet that 31 percent threshold, the plan probably won’t work for you.

Aside from the burden of unaffordable monthly payments, many homeowners are carrying a mortgage that’s bigger than their home is worth. In some cases, lenders may be willing to reduce the principal down to the level of your home’s current value. After all, if they foreclose, they’re going to lose that money anyway.

But that’s up the lender or the company “servicing” your mortgage for the investors who own it. The program is entirely voluntary.

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