Affordable refinancing program a boon for homeowners, though not all

The Obama administration’s initiatives to increase the number of borrowers who can refinance offers hope to homeowners buckling under the pressure of a tough economic climate.

The Making Home Affordable program is designed to assist 7 to 9 million American families in refinancing or modifying their loans to a monthly mortgage payment that is more affordable.

The two initiatives are designed to significantly expand the numbers of borrowers who can refinance or modify their mortgages to a payment that is affordable now and into the future.
The federal government’s Home Affordable Refinance program is intended to help creditworthy homeowners, whose homes have decreased in value, refinance their mortgages to obtain lower interest rates or payments, lock in a fixed interest rate or eliminate onerous loan terms to improve their long-term stability as homeowners.
The bad news is there are restrictions.

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The program only applies to mortgage loans that are owned or guaranteed by Fannie Mae or Freddie Mac. The borrower must be an owner-occupant of a detached house, condominium, duplex, triplex or four-unit residential property, although in some cases the property may be a vacation or second home or even an investment. The borrower must not have made a loan payment more than 30 days late in the last 12 months or missed a payment if the loan was originated fewer than 12 months earlier.
It’s hard to believe but the program will allow the borrower to obtain a new first mortgage for up to 105 percent of the current market value of the property. The borrower also has the ability and may be allowed to finance the closing costs or obtain cash proceeds from the refinancing.
To further qualify, the borrower must have sufficient income to afford the new mortgage payments.
The Fannie Mae version of the program is intended to help borrowers refinance their loans to reduce their monthly principal and interest payment or switch from a short-term, adjustable-rate mortgage, or an interest-only mortgage to a fixed-rate mortgage or an adjustable-rate mortgage with an initial fixed-rate period of at least five years. The payback period may be as long as 40 years.
Freddie Mac’s implementation of the Home Affordable Refinance program, known as the Relief Refinance Mortgage, may be used to reduce the borrower’s interest rate, shorten the loan repayment period or replace an adjustable-rate mortgage, interest-only mortgage or balloon or reset mortgage with a fixed-rate loan.

Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” and “Building New York” on CUNY TV and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.