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!
  1. 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).

  2. 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.

  3. 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:
Current House Value
Current Loan Amount
Current Monthly Principal+Interest Payment
Current Monthly Property Tax+Insurance Payment
Current Monthly Income

You are currently spending 42.86 % of your income on your $ 1,500.00 monthly payment

Oops!, your current LTV is 120.0 %, which is too high
We will 'cram down' your loan to be $ 210,000.00 which is at 105% LTV and means the lender is forgiving $ 30,000.00 of your loan (a principal reduction)
A 40 year 5% loan of $ 210,000.00 will require a monthly payment of $ 1212.2 which is 34.63 % of your income
You qualify! You will pay $ 1085 and the federal government pays half of $ 127.2 to the lender. Your monthly savings: $ 415
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