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The Color of Money

Confused by foreclosure-prevention program? A new website offers guidance

By Michelle Singletary
March 22, 2009
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The Treasury Department and Department of Housing and Urban Development have launched a website that provides information for troubled homeowners about the Obama administration's "Making Home Affordable" program. Www.makinghome affordable.gov, arranges in one place information on the two-pronged approach of the initiative.

There's the refinancing part, designed to help homeowners who are paying their mortgages on time but are not able to refinance at current low rates because of a decrease in their home's value. Eligible first mortgages can't exceed 105 percent of the home's current market value. There's no help to renegotiate a second home loan.

The second prong is aimed at homeowners struggling because their interest rates have increased or they've had a reduction in their incomes. This part aims to modify terms to get homeowners to a point where their monthly first-mortgage payment is not more than 31 percent of their pretax monthly income.

One of the good things about this site is the page containing frequently asked questions. Read them carefully because this is where you'll find program details.

For example, under the modification program, you have to show you can make your payments for three months. If you stay current at the end of the trial period, the interest rate you receive will stay fixed for five years. The government is providing incentives for loan servicers to offer interest rates as low as 2 percent so that a borrower's monthly payment hits that 31 percent mark.

The Treasury says if a 2 percent interest rate does not result in a payment that is affordable, your servicer could extend your loan to 40 years or defer repayment on a portion of the amount you owe, or a portion of your mortgage debt could be forgiven. But the latter option is completely up to the servicer.

Also, starting in the sixth year the interest rate may increase no more than 1 percentage point per year until it reaches the rate cap indicated in your modification agreement. This cap can never be higher than the market rate on the day your loan was modified.

Depending on which program fits your needs, you can take a quick test to see if you qualify for help. If your answers show you're eligible, you're taken to a page with a checklist of the documents you will need when contacting your loan servicer. If you are scheduled for a foreclosure, be proactive. Just because you appear to qualify doesn't mean you will get an automatic stay on your foreclosure. Contact your servicer. You should also call a HUD-approved counselor at 888-995-4673.

If you are having trouble paying your mortgage or you're facing foreclosure, check out the site. If you're having trouble refinancing, go there to get information. But don't expect too much. You'll have calls to make and a lot of paperwork to complete before you get help.

Michelle Singletary is a columnist for The Washington Post. She can be reached at singletarym@washpost.com.

SOURCE: Bloomberg News

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