The official guidelines for President Obama’s $75 billion homeowner rescue plan: Home Affordable Modification Program Guidelines (pdf).
We’ll note the high-cost loan limits for qualifying loans (up to $729,750 for single units); that homes must be owner occupied and a verified primary residence; and income, asset and hardship screens (no modification if you can but are simply choosing not to pay).
Home Affordable Modification Program Guidelines – March 4, 2009 [ustreas.gov]
The Bailouts Are Coming But Is The Bay Area Dying On The Vine? [SocketSite]

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Comments from “Plugged-In” Readers

  1. Posted by anoanon

    Catch 22
    “Borrower’s income will be verified by requiring a signed Form 4506-T (Request for Transcript of Tax Return) and obtaining the most recent tax return on file for each borrower on the note. For wage earners, the two most recent pay stubs or each wage earner on the note will also be required. For self-employed borrowers or for non-wage income, the borrower’s income will be verified by obtaining other third party documents that provide reasonably reliable evidence of income.”
    This does not seemingly help someone like myself who is self employed, had reasonable income last year, but will not this year. In fact, I likely will have to go find a wage earning job.
    I guess I have to wait a year for my lower tax return, but then that will likely be to late to help any….
    On the brite side, I could get my wage earning job at McDonald’s and that would really lower those mortgage payments!

  2. Posted by Average Joe

    Can someone explain this to me? I purchased a SFH in SF last year. With no material change in circumstance, I wouldn’t qualify now under the stated “hardship” guidelines. However, if I lost my job due to the faltering economy (not an unreal possibility), how could they possibly adjust my mortgage to 31% DTI? There’s zero income under that plausible scenario, right?
    I’m thinking that a lot of people will still lose their homes because they lost jobs. In which case, who is really being helped by this program?

  3. Posted by tkpsoma

    There are only two kinds of people: renters and home “owners.” If homeowners get free federal bridge loans it is only at the marginal expense (via future taxes and the price of money, a/k/a interest rates) of renters. How can this government justify such a wealth transfer?

  4. Posted by gowiththeflow

    anoanon – I believe I read the program runs to 2012 so if your wages are lower this year, perhaps you can qual after your next tax return is ready (if you make less in 2009)? Can anyone confirm the 2012 date?
    The questions I am wondering after visiting the financialstability.gov site are:
    1) If a person qualifies for a five year reduction and after five years it converts to the conforming rate; will your reset be based on the rate you had as you entered the program or the rate that type of loan is running at the 5 year mark?
    2) If a person has a 729k GSE loan from 2008 as I got in on, what takes place again during the re-trigger after 5 years if the conforming loan limit is again reduced – would they have to use Jumbo rates at that time?
    3) I have not heard anyone address – does getting a modification wreak havoc on one’s credit records and fico score? I hope the gov was thoughtful enough to set some guidelines in regards.
    I think this will help a lot of people. However if my 3 concerns were not addressed, I believe this may in fact end up causing more problems. This could just delay the bigger issue, another way to ease things over many years. If after 5 years rates re-trigger to the rates on that date vs. what a person had prior and say we are in the midst of inflation, than what?

  5. Posted by Trip

    I believe that this does not apply at all where the current loan is not held by Fannie or Freddie, i.e. the jumbos taken out by most SF buyers in the last several years.

  6. Posted by SoCal Jason

    The ridiculous and most damaging part of this plan is the requirement for lenders to forbear principal in order to make monthly payments affordable.
    If someone buys a house they cannot afford and an over-inflated price (say $300k to $400k more than the reasonable value of a home), then the lender must carry that $300k principal at zero interest for the entire life of the loan or until the house is sold at which time it becomes due as a balloon payment.
    This means that we’ve pushed the biggest problems downstream AND have forced the housing market to stay priced too high for new buyers. Now irresponsible buyers can game the system to avoid foreclosure (the one thing bringing housing prices down to affordable levels, attainable levels by new buyers), by modifying their loans and pushing the “balloon” payment downstream until they absolutely have to sell the house and then just walking away from the payment as a default if they can’t sell for a high enough price.
    This just keeps new buyers out, forces prices to stay high (as owners must sell high enough to pay off the mortgage plus the forborn principal), and creates a problem 5 or more years down the road as all these “balloon” people default (can’t sell, can’t afford the balloon payment to move out).
    Looks like the administration has chosen the Japanese plan (and the “lost decade”) rather than the Swedish plan (forcing people to take the losses they earned).

  7. Posted by gowiththeflow

    I agree on the typ. Jumbos but for example I pulled the “increased conforming” for 729k last year while the temp limits were increased – and my docs all note it to be a GSE 30 year fixed conventional uninsured loan and the bottom of the note states ” multistate fixed rate note – single family – Fannie Mae / Freddie Mac Uniform Instrument” – do you think this counts?

  8. Posted by Debtpocalypse

    Trip, I think that was the old story. My reading of the document suggests they are neither limiting it to Agency mortgages, nor is the limit now $417 – it’s up to $729K now.
    The details are complicated. Hopefully, some smart soul on the internets will clarify the Treasury-speak.

  9. Posted by Observer

    There is another gotcha here, looks like this program doesn’t apply to condos unless there are less than 4 units in the building so local TICs conversions may benefit, folks in all the new towers definitely not.

  10. Posted by Jake

    Observer, I can’t believe that’s right, do you have a citation? That makes no sense whatsoever as the vast majority of condos across the country are in complexes larger than 4 units.

  11. Posted by anono

    condos are not excluded. The program actually allows for refinancing of multi-unit, owner occupied properties of four units or less which I take to refer to small owner occupied apartment buildings. In that case, the owner can refinance the entire building loan through this program and the limits are higher.

  12. Posted by gowiththeflow

    Observer not sure you are right.. I am in the new tower and have always lived in a condo – in almost all cases I have dealt with relating to such, the condo has been deemed a single family residence. Loan docs also state it as such.

  13. Posted by Trip

    Debtpocalypse, here is what I am going off of from the Govt’s web site on this:
    http://www.financialstability.gov/docs/counselor_qa.pdf
    “3. Are all loan types eligible for the Home Affordable Refinance and Home Affordable Modification options? What about FHA/VA/USDA loans?
    The refinancing option is only available for conforming loans owned or securitized by Fannie Mae and Freddie Mac.”
    But I have not read through everything, and there certainly could be some other component.

  14. Posted by Debtpocalypse

    Trip, I’m working from this (today’s release):
    http://www.ustreas.gov/press/releases/reports/modification_program_guidelines.pdf
    On page two, under qualifications, I find the +$700K value and no reference to any Fannie/Freddie holding requirement.
    I’ll be the first to confess I may be missing it, and maybe am not even looking at the right stuff….

  15. Posted by Trip

    Not a model of clarity, these press releases.
    I think (but am not sure) that you have to have a Fannie/Freddie loan to qualify for the first part of the program, which is broader and for those who are current but unable to refi to a lower rate because they are underwater. You may not need a Fannie/Freddie loan to qualify for the second part, which is only for those who can no longer afford to make the monthly payment because the interest rate has increased or income has decreased because of some hardship (medical, loss of job). The latter is still limited to $729k and has tougher qualification standards. Even the latter may be limited to Fannie/Freddie loans — I can’t tell.

  16. Posted by unearthly

    Have no fear 40-year 2% loans are on the way…

  17. Posted by DataDude

    @ SoCal Jason
    You are absolutely right. Take your logic one more step: In 5 years Obama’s hope for homeowners might ultimately trap “owners” into houses that are even MORE underwater than at today’s values.
    Then what? Another bailout, of course. Why should these poor home owners suffer when the government forced them in to this hideous workout problem in the first place?
    Workers need to be mobile. As the economy de-levers and restructures, employees must be able to move freely towards new jobs. Obama’s housing plan creates an exit barrier that will make it more costly for workers to redistribute themselves according to economic opportunity.

  18. Posted by Observer

    Jake, anono and gowiththeflow – thanks for the comments I based my comments on the linked *.pdf, didn’t appreciate that condos were treated as SFH, will have to pull out me loan docs and have another read of them.

  19. Posted by Slow Death

    Referencing Catch 22’s First Post
    It appears that the Home Affordable Modification only helps if your totally tubed and don’t have two nickels to rub together. As an IC, like Catch, I had good income last year, and am dying on the vine this year. Looks like I’ll have to burn through my meager savings, what’s left of my 401K, and then sell off what personal property I have to stay in a home; and hope this mess turns around, or I can find a living wage new job. These plans seem to reward the chronically irresponsible, as most government programs do. Nothing new here for hardworking middle class America; it’s every man for himself.

  20. Posted by location

    Slow Death,
    Not to sound like a total a-hole here, but was it really responsible of you to buy a home that you could not afford in the event of a downturn in the economy?

  21. Posted by diemos

    The real question is why doesn’t he walk away and preserve his savings.

  22. Posted by San FronziScheme

    40-year 2% loans
    And why not a 100-Year 1% mortgage? For about 1550/month (what the median family making 70K can actually afford) you could borrow 1.2M and make all the RE industry happy.

  23. Posted by unearthly

    And why not a 100-Year 1% mortgage? For about 1550/month (what the median family making 70K can actually afford) you could borrow 1.2M and make all the RE industry happy.
    Nah, Helicopter Ben will just start the printing presses; less paperwork.

  24. Posted by Slow Death

    I didn’t buy a home I couldn’t afford. I have an 820 credit rating, and have tried to be financially responsible my entire life. The point is how long could you be in your “Affordable home” without an income stream? I have liquid assets (emergency fund) that will carry me and my family through 2009 if need be. I think that’s more then can be said for most Americans. Maybe I was just blowing off a little steam, at the prospect of burning through my assets through this economic mess. I admit your point is well taken. I shouldn’t have subjected you to my rant of frustration.

  25. Posted by Jake

    It looks like the loans only go to 40 years if, after reducing the loan all the way down to 2%, the overall housing pymt is still more than 31% of gross household income. If your lucky enough to be perfectly over-leveraged so that reducing your interest rate gets you to exactly 31% of gross household income, the term remains 30 years. In that case, you get 5 years at 2%, and current rates for the remainder of the loan (say 5% or so). This could potentially save a borrower a ton of interest without the hassle of refinancing at a much reduced cost and all within their original loan term. (Or at least I THINK this is the case, lol).

  26. Posted by gowiththeflow

    Does anyone know if 2nd mortgages with say the same bank one’s first mortgage is with, would be included in the “overall housing payment of max 31% of gross income”?

  27. Posted by jj

    Mr. Klepper who pulled out $400k from his home equity, buying a boat, a SUV and vacations presumably, wants his share of the pie: $400k write-down and 4%.
    http://www.nytimes.com/2009/03/05/us/05mortgage.html?hp

  28. Posted by FSBO

    jj – when you do your taxes this April, imagine you have a personal line item veto. How many of your tax dollars would you direct to go to Mr Klepper to bail him out of his misjudgments? How much would you give to poor Peter Kraus who received a $30 million bonus from Merrill Lynch for less than 3 months of work? How much for Joe Cassano of AIG who was paid $280M including a $34M bonus for almost single-handedly destroying the world’s largest insurance company (and maybe the world’s economy) and costing American taxpayers $200 billion (and counting)? And, after AIG was finally forced to fire Cassano, they kept him on as a consultant at $1 million per month. How much for John Thain or Killinger of WaMu? For that matter, how many people would voluntarily cough up anything for the Obama stimulus package if they had a choice? I bet the Iraq war could raise more voluntary contributions.

  29. Posted by jj

    Luckily, Mr. Klepper is not getting a free ride: he spent more than $729k limit.
    I understand why the fed is doing the bailout. We are looking at a greater depression if not. I just wish they’d let foreclosures take its course as they should, nationalize too-big-to-fails, clean up their balance sheets and then auction them off.

  30. Posted by San FronziScheme

    I understand why the fed is doing the bailout. We are looking at a greater depression if not.
    True, but the opacity of the multiple bailouts are precipitating the lack of confidence across the board. Nobody trusts anyone. And this killing the markets little by little.
    If they left everything collapse, we’d be in big trouble as well.
    Damned if they do, damned if they don’t. Asset pricing correction will happen whatever the path. Do we want the slow band-aid removal or the fast one?

  31. Posted by eugene espinosa

    Nothing has been mentioned/or said about lenders reviewing every homeowners financial history/or loan transaction background to check if that homeowners qualification fits for loan modification. For example in my case, I have a good job with good income but not enough to make me stable in this economy crash/or downfall. I have properties both rentals and residential where i have incurred refi’s on them. These properties are under water with loan/value ratio from 120% to about 150%. I also have five loan transactions with these properties but can’t qualify for refi because loan transaction is limited to 4 only. I have a rental that is fully paid where I got denied by the lender for refi. Therefore, I am totally disqualified for loan modification. If that is so, then what i can suggest the bail-out program to offer is to have the lenders give us back the line of credit allowance that we use to have before the economy crashes not necessary the whole thing/or a more decent amount of least 50% or something to back us up with our hardships in paying our bills as an emergency reserved fund. I think this suggestion will help in some way or another improve /or bring the economy back to life. This applies to people who are still in good shape in their financial status as of now until we know what will happen next. Hopefully, our economy will come back in progress soon.

  32. Posted by diemos

    “If that is so, then what i can suggest the bail-out program to offer is …”
    Or … you could walk away from your failed investments, keep the one paid off rental and start over. Then the taxpayers wouldn’t need to lend you any money that you don’t deserve.

  33. Posted by Jimmy (No Longer Bitter)

    Eugene: why do you want to keep these properties from which you have already withdrawn between 120% and 150% of the equity? You’ve gotten a GREAT DEAL, a GIFT from the banks — they’re loaned you way more than the properties are worth, AND you walk away with a full paid-for rental property that will give you income.
    WHY would you even want to take a loan out to keep feeding those underwater alligators?? Just take your medicine, let the properties go to foreclosure and within 3-4 years your credit rating will be adequate to obtain financing on your next project. (Remember the 3 C’s: credit, capacity and collatoral. Apparently you have capacity but nothing else).
    Your banker is doing you a favor by not encumbering your last remaining (true) asset with debt that you admit you will simply waste trying to hold on to massively underwater real estate.

  34. Posted by diemos

    “why do you want to keep these properties”
    Because he’s still holding on to the dream that the current fall in value is just a little blip and if he can hold on long enough the values will come back.
    If he were actually cash flow positive with fully amortizing loans on these properties it wouldn’t be a problem. He could just sit back and eventually he would have fully paid off, income producing assets. Instead he’s bleeding, and instead of accepting his losses and staunching the bleeding he will choose to go on bleeding until all the value is gone.
    Humans.
    Not rational but definitely predictable.

  35. Posted by Jimmy (No Longer Bitter)

    diemos: I’m of the opinion that in 20 or 30 years (e.g. around the time I reach retirement age), we will all be able to look back on the bubble prices of 2006 and “wish we had bought then.” Of course, by then, a cheeseburger will cost $15 at Mickey D’s.
    Inflation is a wonderful thing … and apparently for some people, it can’t come soon enough.

  36. Posted by steve

    jimmy, I’m enjoying the current deflation. I’m able to hire talent at more reasonable rates, and they are able to enjoy the same or higher standard of living on less salary. it’s win/win.

  37. Posted by caryn

    A major reason that everyone is upside down on their home is that so many people foreclosed or did a short sale on their homes or the banks sold the houses for a very low amount which drove the home prices down to way below what they were worth. Most houses in Florida decreased by 50%. The problem facing homeowners now is not due to people buying homes they couldn’t afford – it might have started out by people who bought houses they couldn’t afford but it has now affected everyone’s home value.

  38. Posted by diemos

    Sorry Caryn but you have it backwards.
    People being allowed to take out loans that they had no hope of ever paying back was the reason that the price of houses was bid up to twice what they were worth.
    Once the financial system figured out that not getting paid back was a bad thing and stopped making those loans it was inevitable that prices would fall back down to what the the house was worth through the mechanism of foreclosure.
    It’s unfortunate that a great many people mistook a temporary aberation in prices from crazy lending for a real increase in value and overpaid, but that’s what happened.

  39. Posted by John Wright

    If it walks like a piggy, talks like a piggy, by golly it’s a PIGGY!
    BofA and it’s CEO Brian Moynihan reminds me of that song by John Lennon and George Harrison titled “Piggies” I invite you to listen to this song on youtube and see if it appropriately fits.
    http://www.youtube.com/watch?v=sXdKlpBOvs0&feature=related
    Have you seen the little piggies
    Crawling in the dirt
    And for all the little piggies
    Life is getting worse
    Always having dirt to play around in.
    Have you seen the bigger piggies
    In their starched white shirts
    You will find the bigger piggies
    Stirring up the dirt
    Always have clean shirts to play around in.
    In their ties with all their backing
    They don’t care what goes on around
    In their eyes there’s something lacking
    What they need’s a damn good whacking.
    Everywhere there’s lots of piggies
    Living piggy lives
    You can see them out for dinner
    With their piggy wives
    Clutching forks and knives to eat their bacon.
    Wright vs. Bank of America Lawsuit at: unitedlawgroup.com
    When I filed my lawsuit against Bank of America, myself and United Law Group thought of the many others out there in the same situation. It was then that we decided to educate the public on what these piggy banks are doing, as well as unite us all together as one voice. Please help me turn this David vs. Goliath modification process, into a Goliath vs. Goliath.
    Please stand with me and United Law Group and send an email to Bank of America that states that we will no longer tolerate their potentially illegal, fraudulent, irregular and abusive business methods.
    Divided we might have fell America, but united we must stand!
    Please send your email directly to Bank of America and include the following:
    1. Your name
    2. Your complaint concerning your experience with Bank of America.
    3. Please end your email “I support John Wright vs. BofA Lawsuit!”
    4. Please send a copy of your email to johns-wright@hotmail.com
    5. Please send your email to both BofA link below and the CEO email
    BofA Linked Email:
    https://www3.bankofamerica.com/contact/?lob=general&contact_returnto=&state=VA
    CEO Brian Moynihan:
    brian.t.moynihan@bankofamerica.com

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