People with mortgages as high as $729,750 could qualify for help, and there is no ceiling on how high their income can be as long as they are in danger of losing their homes. Interest rates on loans could go as low as 2 percent for some. Many homeowners could see their mortgage payments drop by several hundred dollars a month, and some could save more than $1,000 a month.

Administration officials estimate that the plan will help as many as four million people avoid foreclosure, at a cost to taxpayers of about $75 billion. In addition, the Treasury Department said it intended to follow up with a plan to help troubled borrowers with second mortgages, which many homebuyers used as “piggyback” loans to buy houses with no money down.

The plan is bolder and more expensive than any of the Bush administration’s programs, which were based almost entirely on coaxing lenders to voluntarily modify loans. While the number of loan modifications has climbed sharply, the number of foreclosures skyrocketed to 2.2 million at the end of 2008, a record.

The new plan, which takes effect immediately, is intended to win much bigger concessions from lenders by offering a mix of generous financial incentives and regulatory arm-twisting. The final impact will depend on how both lenders and the investors who own mortgages respond, but housing experts said the administration had a good chance of achieving its goal.

The eagerness with which lenders agree to modify loans is likely to be affected by a bill that the House is expected to take up on Thursday.

It would give bankruptcy judges the power to order changes in mortgages on primary residences and would protect loan-servicing companies from lawsuits by investors.

Several of the nation’s biggest mortgage-servicing companies, overseeing two-thirds of all home loans in the country — Citigroup, JPMorgan Chase, Bank of America and Wells Fargo & Co. are expected to participate in the plan.

In addition, any bank that receives additional federal money under the Treasury Department’s $700 billion financial rescue program will be required to take part. But many lenders are expected to participate voluntarily, because the government would be absorbing much of the cost of resolving their bad loans.

“I predict this program will be extremely effective at reducing foreclosures,” said Eric Stein, senior vice president at the Center for Responsible Lending, a nonprofit advocacy group for homeowners.

Administration officials have similar expectations.

“It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing markets,” said Timothy F. Geithner, the Treasury secretary.

In releasing detailed guidelines on the plan, first unveiled Feb. 17, the Treasury Department made it clear that the program would not help every homeowner in trouble. It will do little to help families whose income has evaporated because one or more breadwinners have lost their jobs, nor will it save those swamped by big debts beyond their mortgages. It will not do much for homeowners who are current on their loans but “upside down” — owing more than their houses are worth.

Still, the program, when combined with a separate effort to help homeowners refinance their loans even if they are not in distress, could help put a floor under home prices.

The Treasury has instructed Fannie Mae and Freddie Mac, the two government-controlled mortgage-finance companies, to refinance homeowners at today’s low market rates even if the owners have less than the standard 20 percent equity that is usually required.

This second program applies to about 30 million people with mortgages owned or guaranteed by Fannie or Freddie, but will not be available to people whose mortgages are much higher than their home’s market value.

Administration officials said it could lower monthly payments for as many as five million homeowners. To finance that effort, the Treasury is providing the two companies with up to $200 billion in additional capital, on top of $200 billion that it had already pledged to them.

Under the new loan modification guidelines, the Treasury will offer mortgage-servicing companies upfront incentive payments of $1,000 for every loan they modify and additional payments of $1,000 a year for the first three years if the borrower remains current. The Treasury will also chip in $1,000 a year to directly reduce the borrower’s loan amount, if the borrower stays up to date on payments.But the biggest subsidies are in reducing the size of a person’s monthly payment. If the lender reduced the borrower’s monthly housing payment to 38 percent of the household’s gross monthly income, the Treasury Department would match, dollar for dollar, the lender’s cost in reducing payments down to 31 percent of monthly household income.

The program calls on lenders first to reduce interest rates to as low at 2 percent for the next five years to hit the monthly income target. After five years, some borrowers would start to pay gradually higher rates, but their rates could not exceed the market rate at the time they renegotiated.

That would be a favorable deal for many people. At the moment, the market rate for such loans is just over 5 percent — very low by historical standards.

The key to determining whether a person receives help will be a so-called net present value calculation by the mortgage company.

In essence, a lender will first have to calculate how much it would cost to reduce a person’s monthly payments to an “affordable” range, 31 to 38 percent of the borrower’s monthly income.

If the calculation shows that the lender’s cost in modifying the loan, after receiving the taxpayer subsidy, would be lower than the cost of foreclosing, the lender would be required to offer a borrower the new deal. If the estimated cost of the concessions appeared to be higher than the cost of foreclosure, the decision would be voluntary.

Housing experts estimate that lenders lose about half the outstanding loan amount if they pursue foreclosure, and those losses are climbing as the resale value of houses continues to fall. As a result, the program could lead to millions of loan modifications.

Borrowers cannot be charged any modification fees, the Treasury Department said. Lenders will have to bear the administrative expense of reviewing the loans and making their cost estimates. Treasury officials said they were trying to warn consumers against fraud artists and consultants who are seeking to collect fees for helping homeowners negotiate with lenders.

There is no ceiling on how much a person can earn and still qualify for help, but the size of the mortgage to be modified cannot be higher than $729,750 for a single-family home, or $1.4 million for the mortgage on a four-unit condominium or cooperative.

The program is open only to borrowers who live in the homes at issue, and not to investors or people with mortgages on second or third homes. It is open to people who obtained a mortgage before Jan. 1, 2009. Borrowers can apply for loan modifications until the end of 2012.

Borrowers Who Are Current on Their Mortgage Are Asking:

1. What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?

Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.

2. I owe more than my property is worth, do I still qualify to refinance under the Homeowner Affordability and Stability Plan?

Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.

3. How do I know if I am eligible?

Complete eligibility details will be announced on March 4th when the program starts. The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.

4. I have both a first and a second mortgage. Do I still qualify to refinance under the Homeowner Affordability and Stability Plan?

As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan. Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage.

5. Will refinancing lower my payments?

The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan. Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments. Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate. These borrowers, however, could save a great deal over the life of the loan. When you submit a loan application, your lender will give you a “Good Faith Estimate” that includes your new interest rate, mortgage payment and the amount that you will pay over the life of the loan. Compare this to your current loan terms. If it is not an improvement, a refinancing may not be right for you.

6. What are the interest rate and other terms of this refinance offer?

The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment. All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate. The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender. Interest rates may vary across lenders and over time as market rates adjust. The refinanced loans will have no prepayment penalties or balloon notes.

7. Will refinancing reduce the amount that I owe on my loan?

No. The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans. Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe. However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.

8. How do I know if my loan is owned or has been securitized by Fannie Mae or Freddie Mac?

To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible to be refinanced, you should contact your mortgage lender after March 4, 2009.

9. When can I apply?

Mortgage lenders will begin accepting applications after the details of the program are announced on March 4, 2009.

10. What should I do in the meantime?

You should gather the information that you will need to provide to your lender after March 4, when the refinance program becomes available. This includes:

· information about the gross monthly income of all borrowers, including your most recent pay stubs if you receive them or documentation of income you receive from other sources

· your most recent income tax return

· information about any second mortgage on the house

· payments on each of your credit cards if you are carrying balances from month to month, and

· payments on other loans such as student loans and car loans.

Borrowers Who Are at Risk of Foreclosure Are Asking:

1. What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments?

The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

2. Do I need to be behind on my mortgage payments to be eligible for a modification?

No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.

3. How do I know if I qualify for a payment reduction under the Homeowner Affordability and Stability Plan?

In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final eligibility will be determined by your mortgage lender based on your financial situation and detailed guidelines that will be available on March 4, 2009.

4. I do not live in the house that secures the mortgage I’d like to modify. Is this mortgage eligible for the Homeowner Affordability and Stability Plan?

No. For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible. If you used to live in the home but you moved out, the mortgage is not eligible. Only the mortgage on your primary residence is eligible. The mortgage lender will check to see if the dwelling is your primary residence.

5. I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible?

Yes. Mortgages on 2, 3 and 4 unit properties are eligible as long as you live in one unit as your primary residence.

6. I have two mortgages. Will the Homeowner Affordability and Stability Plan reduce the payments on both?

Only the first mortgage is eligible for a modification.

7. I owe more than my house is worth. Will the Homeowner Affordability and Stability Plan reduce what I owe?

The primary objective of the Homeowner Affordability and Stability Plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Lenders are likely to lower payments mainly by reducing loan interest rates. However, the program offers incentives for principal reductions and at your lender’s discretion modifications may include upfront reductions of loan principal.

8. I heard the government was providing a financial incentive to borrowers. Is that true?

Yes. To encourage borrowers who work hard to retain homeownership, the Homeowner Affordability and Stability Plan provides incentive payments as a borrower makes timely payments on the modified loan. The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.

9. How much will a modification cost me?

There is no cost to borrowers for a modification under the Homeowner Affordability and Stability Plan. If you wish to get assistance from a HUD-approved housing counseling agency or are referred to a counselor as a condition of the modification, you will not be charged a fee. Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance.

10. Is my lender required to modify my loan?

No. Mortgage lenders participate in the program on a voluntary basis and loans are evaluated for modification on a case-by-case basis. But the government is offering substantial incentives and it is expected that most major lenders will participate.

11. I’m already working with my lender / housing counselor on a loan workout. Can I still be considered for the Homeowner Affordability and Stability Plan?

Ask your lender or counselor to be considered under the Homeowner Affordability and Stability Plan.

12. How do I apply for a modification under the Homeowner Affordability and Stability Plan?
You may not need to do anything at this time. Most mortgage lenders will evaluate loans in their portfolio to identify borrowers who may meet the eligibility criteria. After March 4 they will send letters to potentially eligible homeowners, a process that may take several weeks. If you think you qualify for a modification and do not receive a letter within several weeks, contact your mortgage servicer or a HUD-approved housing counselor. Please be aware that servicers and counseling agencies are expected to receive an extraordinary number of calls about this program.

13. What should I do in the meantime?

You should gather the information that you will need to provide to your lender on or after March 4, when the modification program becomes available. This includes

· information about the monthly gross income of your household including recent pay stubs if you receive them or documentation of income you receive from other sources

· your most recent income tax return

· information about any second mortgage on the house

· payments on each of your credit cards if you are carrying balances from month to month, and

· payments on other loans such as student loans and car loans.

14. My loan is scheduled for foreclosure soon. What should I do?

Contact your mortgage servicer or credit counselor. Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower’s eligibility. We support this effort.

This reform would allow bankruptcy courts to change the terms of mortgages on homes, so that the homeowner could get a fixed rate, stretch the total term to 40 years, and lower the balance to the value of the house.

Of course, being that this would cost the taxpayers nothing, no opportunity for our trusted servants to pass out taxpayer money to their own benefit, it is now taking a back seat to the stimulus bill, which will be the largest single disbursement of our money, ever.

As the foreclosure crisis continues and gets worse, not better, this relief is needed now more than when we started blogging for it many months ago.

National Association of Consumer Bankruptcy Attorneys report on the status of the bill follows:

“the House of Representatives will vote next week on the economic recovery plan that President Obama is working with Congress on getting enacted. We learned late today that the chapter 13 mortgage modification bill will not be included in that package. The good news is that President Obama and House and Senate Democratic leaders are firmly committed to getting this legislation passed into law as soon as possible and will be looking for appropriate vehicles to attach it to.

In the meantime, the House Judiciary Committee will mark up H.R. 200, the chapter 13 mortgage modification bill on Tuesday.”

Your house may not be in foreclosure, but its value is being lowered by all the homes in your neighborhood already there.

This reform costs us nothing, compared to the hundreds of billions already thrown to the banks largely responsible for creating the crisis.

Let your representatives, especially in the Senate, know how you feel.

Whether you spell it cramdown, cram down, cram-down, or CramDown, the subject was in the news last week. Basically Citigroup reached a compromise with lawmakers to allow bankruptcy judges to modify terms of existing mortgages, and industry-wide legislation is probable. Both houses introduced bills allowing bankruptcy judges to permanently reduce mortgage balances to the property’s fair value on principal residences, among other measures. Citigroup’s agreement, in addition to addressing existing mortgages and not future loans, permits bankruptcy modifications as long as filers previously contacted their lender in an attempt to secure a loan modification prior to filing (for new filers) or requesting the mortgage be modified in bankruptcy (for existing filers).

The Mortgage Bankers Association, and others, opposes the issue, due to the many issues that are unresolved and the destabilizing affect on the market. The industry’s concerns are well based. Losses from bankruptcy cram downs could be significantly larger than servicer-driven modifications, and the potential for high plan failure rates could further increase losses and charge-offs without stemming foreclosures or accelerating a housing recovery. Bankruptcy filings could double or more, increasing credit card charge-offs. Some fear a massive sell-off that would worsen valuations, threatening further balance sheet write-downs. Although it is believed that less than 1% of existing mortgages would be impacted, industry experts feel that cram-downs lower whole loan valuations. Since mortgage and home equity loans are, on average, 40% of large banks’ loan books, CramDowns of principal would lower that value, hurting bank equity. Home equity loans are in the first loss position in a cramdown scenario, and it is believed that for many borrowers bankruptcy could become a more attractive option, accelerating default rates.

Switching topics, Fannie Mae has issued Lender Letter 01-2009 to temporarily extend their halt to foreclosures and evictions. The original expiration of the halt was Friday, January 9th, and it was moved out to January 31st. The temporary foreclosure halt now applies to all single-family properties (whether a property is occupied or vacant), secured by a conventional mortgage loan, which have or will have a foreclosure sale date scheduled through January 31, 2009. This extension gives mortgage servicers additional time to begin modifying mortgage loans under the Streamlined Modification Program (SMP), which began on December 15, 2008.

Fannie Mae has also begun testing short sales as an alternative to foreclosures in an effort to reduce that delay and spur sales by agreeing on a price for a home even before a buyer has been found. They have started two pilot projects, which will last 3 months, in Phoenix and Orlando. The test run is limited to properties secured by a Fannie Mae mortgage and serviced by Bank of America’s Countrywide. Only homes already listed at less than the unpaid balance on the mortgage are eligible for the pilot.

Getting back to the current market, Friday’s unemployment data came in about as expected, but certainly confirmed that the jobs market in the United States is grim. The market traded lower immediately following the number but regained its footing and closed at the highs of the week in every issue except the long bond. The Fed can’t lower short rates anymore, and may need to raise upwards of $2 trillion in 2009. “That is a lot of money” would be the understatement of the day. For economic news, we have nothing today or tomorrow, but then December’s Retail Sales data comes early Wednesday morning and is expected -1.1%. Thursday we have the Labor Department’s Producer Price Index (PPI), expected -1.9%, and on Friday we have Consumer Price Index, Industrial Production, and the preliminary reading to the University of Michigan’s Index of Consumer Sentiment. Currently mortgage prices are worse by about .250, and the 10-yr is at 2.42%.