Reduce Mortgage Payment: 3 Loan Modification Scenarios

michael e. riley — Wed, 25 Feb 2009 17:03:35 +0000

Refinancing Under New Housing Plan can be confusing. Below examples provided by the US Treasury Department will help you understand the new Homeowners Affordability and Stability Plan (HASP). Find out if you can refinance or lower your mortgage under the new plan.

Family A: Access to Refinancing

In 2006: Family A took a 30-year fixed rate mortgage of $207,000 on a house worth $260,000 at the time. (The family put just over 20% down.) They received a Fannie Mae conforming loan with an interest rate of 6.50%.

Today: Family A has about $200,000 remaining on their mortgage but their home value has fallen 15 percent to $221,000.
Their “loan-to-value” ratio is now 90%, making them ineligible for a Fannie Mae refinancing.

Under the Refinancing Plan: Family A can refinance to a rate of 5.16%. This would reduce their annual payments by nearly $2,350.

	Existing	Refinancing
Balance	$199,584	$203,575
Remaining Years	27	30
Interest Rate	6.50%	5.16%
Monthly Payment	$1,308	$1,113
Savings	*$196 per month, $2,347 per year*

Family B: Access to Refinancing

In 2006: Family B took a 30-year fixed rate mortgage of $350,000 on a house worth $475,000 at the time. (The family put just over 26% down.) They received a Fannie Mae conforming loan with an interest rate of 6.50%.

Today: Family B has about $337,460 remaining on their mortgage but their home value has fallen to $400,000.
- Their “loan-to-value” ratio is now 84%, making them ineligible for a Fannie Mae refinancing.

Under the Refinancing Plan: Family B can refinance to a rate of 5.16%. This would reduce their annual payments by nearly $4,000.

	Existing	Refinancing
Balance	$337,460	$344,210
Remaining Years	27	30
Interest Rate	6.50%	5.16%
Monthly Payment	$2,212	$1,882
Savings	*$331 per month, $3,968 per year*

Family C: Eligible for Homeowner Stability Initiative

In 2006: Family C took out a 30-year subprime mortgage of $220,000, on a house worth $230,000 at the time (they put less than 5% down). Their mortgage broker – Mom & Pop Mortgage – sold their loan to Investment Bank. The interest rate on their mortgage is 7.5%.

Today: Family C has $214,016 remaining on their mortgage but their home value has fallen -18% to $189,000. Also, in November, one parent in Family C was moved from full-time to part-time work, causing a significant negative shock to their income.
- Their loan is now 113% the value of their home, making them “underwater” and unable to sell their house.
- Meanwhile, their monthly mortgage payment is $1,538 and their monthly income has fallen to $3,650, meaning the ratio of their monthly mortgage debt to income is 42%.

Under the Homeowner Stability Initiative: Family C can get a government sponsored modification that – for five years – will reduce their mortgage payment by $406 a month. After those five years, Family C’s mortgage payment will adjust upward at a moderate, phased-in level.

	Existing	Refinancing
Balance	$213,431	$213,431
Remaining Years	27	27
Interest Rate	7.50%	4.42%
Monthly Payment	$1,538	$1,132
Savings:	*$406 per month, $4,870 per*

Loan Modification and Litigation » housing plan refinance

Reduce Mortgage Payment: 3 Loan Modification Scenarios

Family A: Access to Refinancing

Family B: Access to Refinancing

Family C: Eligible for Homeowner Stability Initiative