The Helping Families Save Their Home Act of 2009 was signed in to law by President Obama and is being touted as a way to reduce the number of foreclosures for FHA-insured mortages across the country.
The biggest adjustment is that it allows banks to consider adjusting mortgages when the home owner is still current or less than 30-days late. Previously the home owner had to be 60-90 days late to even enter into the program.
HUD providing a helping hand to those in financial trouble. (photo by sanja gjenero and used with permission)
Will The Helping Families Save Their Home Act Work?
That’s hard to determine right now. The basics of the program are pretty sound and if banks are willing to use this program and the FHA isn’t too harsh on determining the financial hardship then it could be a very good signing. But after the failure of the initial Making Homes Affordable plan where only 7% were able to modify, we have to go in with a bit of a skeptical eye.
What is The Helping Families Save Their Home Act?
The basics of the act are that those facing significant changes in their income will have the monthly payment on their current mortgage reduced to levels that can be afforded. That sounds good.
The payment will stay at that level until the original mortgage term is up and at that point any remaining money owed will be essentially refinaced into another loan on the home.
An example would be. Jimmy is paying $1,000 per month on his house and had 20 years remaining on his mortgage with a value of $100,000. Jimmy’s income has dropped and he can only afford $500 per month. So he pays $500 per month for the next 20 years and is left with $50,000 that he didn’t pay back to the bank. So in 2029, him and the bank would enter into another loan on the remaining $50,000 and he’d pay it off at that time. (The remaining $50,000 is interest free until the first mortgage is paid off.
Now of course the loan could be refinanced at anytime and the balance of the mortgages’ paid off. Which more than likely would be what would happen to most of the loans.
What is a Significant Reduction in Income?
Well that is of course going to be determined on a case-by-case basis. However, HUD does provide a little bit of insight into the situation.
- A reduction in or loss of income that was supporting the mortgage loan, e.g., unemployment, reduced job hours, reduced pay, or a decline in self-employed business earnings. A scheduled temporary shutdown of the employer, (such as for a scheduled vacation), would not in and by itself be adequate to support an imminent default.
- A change in household financial circumstances, e.g., death in family, serious or chronic illness, permanent or short-term disability.
One thing that is not mentioned in the discussion that I’m curious about how they are goin to handle is divorce.
It will be interesting to see how this program rolls out, hopefully it will be a more accessable program than some of the others we’ve seen attempt to “cure” the housing market.
