| The goal of the Making Home Affordable Home | | | | Will the mortgage company do this? The program |
| Modification Program is to help each person facing | | | | guidelines require the mortgage company to test to |
| foreclosure save their home. They way this is done is | | | | see if a modification to the mortgage is better for |
| by having a person's mortgage company reduce their | | | | the investor than going forward with the foreclosure. |
| monthly mortgage payments to 31% of their income | | | | If the modification is better, then the mortgage will |
| for 5 years. After 5 years their payments will rise to | | | | be reduced. |
| a certain predetermined fixed amount. | | | | What happens to the $16,040? The person still owes |
| The mortgage company will bring their monthly | | | | it. However, they pay no interest on it. It has to be |
| mortgage payment down to 31% of a person's | | | | paid off at the end of the mortgage. |
| income by reducing the interest rate on the | | | | If the mortgage lasts 30 years, they would have to |
| mortgage. It will be reduced in adjustments of | | | | pay the $16,040 at that point. If the home is sold or |
| 0.125% to as low as 2.0% if necessary. | | | | the mortgage is refinanced, it has to be paid off |
| In certain instances it may not be possible to reduce | | | | then. It is paid off with the balance of the mortgage. |
| a person's monthly mortgage payment to 31% of | | | | However, it is separate from the other mortgage |
| their income even with a rate of 2.0%. In those | | | | and the payment is called a balloon payment. |
| instances the mortgage company can look at | | | | If this option is the only way a person facing |
| reducing the balance on the mortgage to the level to | | | | foreclosure can get to the 31% ratio, they have to |
| accomplish this. | | | | determine if it is in their best interest to go ahead |
| Let's look at an example. | | | | with it. If in the future the value of their home drops |
| A person's monthly gross income is $4,150. 31% of | | | | much lower than the present value and they have to |
| that is $1,286.50. The monthly escrow payment for | | | | sell their home for far less than they owe on their |
| real estate taxes and insurance is $430. The amount | | | | mortgage, it is not worthwhile for them to do this. |
| left for a principal and interest payment is $848.50. | | | | They should consult with a lawyer or an expert in |
| At a 2% interest rate the balance on their mortgage | | | | loan modifications. This person does not have any |
| would have to be $229,560. The current balance on | | | | emotional attachment to the home. They will help |
| their mortgage is $245,600. So the mortgage | | | | them determine if this is the right way for them to |
| company would have to reduce the mortgage by | | | | proceed. They can also let them know what options |
| $16.040 if they are to modify this person's mortgage. | | | | are available to them. |