Making Home Affordable Program

What is the Making Home Affordable Program?

In an attempt to prevent the destructive impact of the housing crisis on families and communities, the U.S. government has developed the Making Home Affordable program, a comprehensive $75 billion mortgage modification opportunity for potentially millions of homeowners in America. Making Home Affordable is intended to complement the Recovery and Reinvestment Act and the Financial Stability Plan by strengthening confidence in America’s housing market.

Making Home Affordable offers several helpful features in response to the current housing crisis.

Cooperative leadership

Making Home Affordable brings together mortgage lenders, loan servicers, Fannie Mae, Freddie Mac, the Departments of the Treasury and of Housing and Urban Development (HUD), the FHA, the FDIC, and other federal agencies in reaching out to working homeowners who have made every possible effort to stay current on their mortgage payments.

Clear and consistent guidelines for loan modifications

Making Home Affordable standardizes the procedures to be used in connection with mortgage loan modifications. These guidelines from the Treasury Department can be applied to all types of mortgage loans from both the private sector and government agencies.

Common-sense elements have also been included in the Treasury guidelines. For example, Making Home Affordable is for owner-occupants with mortgage balances of less than $729,750, not for investors and flippers.

Relief from decreasing home values

Making Home Affordable offers assistance to homeowners who are making a good-faith effort to make their mortgage payments while their home values decrease. Most refinancing plans require that you owe less than 80 percent of your home value, but if that value has gone down 20 percent in the past few years, the homeowner is right back on square one. Even while making regular mortgage payments, it can take longer to hit the 80 percent mark. Homeowners with additional mortgages have an even greater chance of holding negative equity in their home. More liberal refinancing terms can reduce monthly payments, making a home more affordable.

Stability for subprime borrowers

Adjustable-rate mortgages have produced mortgage payments of up to 40 and even 50 percent of the borrower’s monthly income. Unusual and unclear loan terms have destroyed many homeowners’ ability to stay on a stable budget. The modification terms set forth by the Making Home Affordable program can ensure that these homeowners can walk away with comprehensible loan terms that they can live with.

Hope for homeowners with hardships

Job loss is only one of the hardships that puts a homeowner at risk for defaulting on their mortgage. Making Home Affordable is trying to catch these homeowners before they become delinquent on their mortgage and offer them more affordable terms. Homeowners who have more than 55 percent of their income tied up in combined housing, auto, and credit card debt may qualify, but only if they agree to participate in a HUD-certified debt counseling program.

Incentives for servicers and borrowers

Financial incentives have been added to encourage loan servicers to work with the Making Home Affordable program. In addition to an up-front benefit of $1,000 to cover administrative costs, participating servicers will also receive “pay-for-success” fees for every year that a borrower successfully completes under the new loan modification terms. Servicers may also receive incentives to discourage foreclosure proceedings and to offset investor losses due to declining home values.

Incentives are also available for borrowers who continue to make their payments on time. Borrowers’ incentives come in the form of a reduction - up to $1,000 per year for five years - of the principal balance on the mortgage loan.

Provisions for judicial loan modifications

When other loan modification efforts have been exhausted and the borrower has no other options, a bankruptcy judge may now be able to reduce the outstanding principal balance of a first mortgage to current fair market value during bankruptcy proceedings.

Support for local communities

By reducing the number of foreclosures, Making Home Affordable will have a positive impact on the surrounding neighborhoods. For instance, renters are often innocent victims of their landlords’ financial trouble. Often, when a rental unit is forced into foreclosure, the tenants are evicted even though they have faithfully paid their rent. The recovery plan includes $2 billion in grants for private programs dedicated to reducing foreclosure and an additional $1.5 billion to help displaced renters find new housing and avoid having to stay in shelters.

Encouragement for mortgage investors

Often unseen by homeowners, the strength of mortgage-backed securities depends on the confidence in the housing market and the stability of mortgage portfolios. As part of the Making Home Affordable program, the Treasury Department has increased funding to Fannie Mae and Freddie Mac, with complementary increases the size of their portfolios and the amount of debt they are allowed to carry. The program will continue to work with state housing finance agencies to help homebuyers across the country.

Although millions of American families are expected to have some contact with the foreclosure process, the Making Home Affordable program seeks to reduce the number of families that actually go through the foreclosure process. For borrowers who remain committed to staying in their homes, the program can make an incredible difference in the future of home ownership.