Homeowner Affordability and Stability Plan Calculator
(aka "Making Home Affordable")
Wow, the full details to
Pres. Obama's plan to help stop foreclosures and help homeowners
(Home Affordability and Stability Plan - HASP) have been
released, and already people are still complaining about the "free
bailout" for people who bought more than they can afford. That is not exactly
how the plan works, so here are some numbers to help everyone see the details
as they exist. Note that this calculator tries to cover both the loan modification
program (HAMP - Home Affordable Modification Program) and the refinancing
program (HARP - Home Affordable Refinance Program). You must try to figure
out the proper ridiculous government acronym for you!
- First, the plan will only work for loans which are a maximum
105% of the current market value of the home. If is it close, say 110% or 120%,
it is up to the lender to forgive part of the principal to reduce the loan
to within 105% LTV. Otherwise, the loan does not qualify. Remember, the
federal government is giving money directly to the lenders, not the
actual borrower, and any
lender with half a brain (which definitely does not include all lenders!)
would rather lower the required balance of the loan
by 5-10% so that a borrower qualifies for the program than to end up with
just another foreclosure to process. For many people, simply raising the
financing limit to 105% LTV (on Fannie Mae and Freddie Mac loans for property worth less than $729,250) will be all they need to refinance their loans to a new fixed
conventional loan they can afford with their current income (HARP).
- For people who could not qualify for a conventional refinance with a
105% LTV loan, the next step is loan renegotiation (also known as loan
modification - HAMP).
The lender must renegotiate the loan with the borrower so that the new
total payment is no more than 38% of their total household income. This will
be done by lowering the mortgage rate (to a minimum of 2%), and using a longer
loan term (expect to see plenty of 40 year loans being used!). The lender can
also further reduce the principal balance of the loan, but that is up to the
lender to decide. If the
borrower does not have sufficient income for 38% of it to cover the loan, they
are out of luck. So anyone who lost a job is probably not going to benefit,
unless their spouse's income is sufficient to pay the renegotiated loan.
- Finally, if the lender and borrower have reached an agreement where 38%
of the borrower's income will cover the loan, that is when the federal
government comes in. The fed will cover one half of the difference to bring the final
payment seen by the borrower to 31% of their income (the lender must lose the other half of the difference). So this is where the $75
billion is spent, paying half the "spread" between the 38% monthly payment and the
31% payment. This is the incentive for the lender to negotiate a favorable loan
with a delinquent or struggling borrower. The federal money is guaranteed "free"
money from the federal government to the lender if they can work with the
borrower to set up a loan they can afford using the 31% of income criteria.
Time for some numbers:
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