Economic Recovery Act
Interpreting the Housing and Economic Recovery Act and the Making Homes Affordable Program
By Grace Anne Glavin, Esquire
Every news program on television or radio discusses the issues facing the working homeowner regarding the current crisis with home prices and the average person’s ability to own a home or refinance.
A. Housing and Economic Recovery Act
Congress of the United States passed the Housing and Economic Recovery Act to be administered by the Federal Housing Administration on October 1, 2008 to continue through September 30, 2011. An estimated 400,000 borrowers in danger of losing their homes are now able to refinance into more affordable government-insured programs (FHA). The program also offers FHA insurance to lenders who voluntarily reduce mortgage balances for at-risk homeowners to at least 90 percent of the property’s current value.
Who is eligible?
1. A borrower must have an owner-occupied residence – no investors or second homes
2. A borrower must have a monthly mortgage payment greater than at least 31 percent of the borrower’s total monthly income
3. A borrower must certify that he has not intentionally defaulted on an existing home loan or been fraudulent.
Are lenders required to participate in this federal program?
No, it is voluntary participation.
How can a borrower apply for this program?
The borrower should contact an FHA approved lender to make application so that the lender may qualify the borrower for a loan amount only after the borrower provides full documentation of his loan.
What is the tax credit?
A refundable credit for first-time home buyers works like an interest free loan up to $7,500 to be repaid over 15 years.
What happens to the old lender in a refinance?
Lenders must take big losses in order to participate. The owner of the old mortgage will get a maximum of 90 percent of the current value of the home.
Are short sale payoffs still available?
Yes, now more than ever. Sellers need to submit two years tax returns, three months of bank statements, usually a hardship letter, and proof of listing with a licensed realtor.
B. HARP – Home Affordability Refinance Program
This is the opportunity for homeowners with mortgages financed through or guaranteed by Fannie and Freddie to refinance. These are the Freddie guidelines; I have not seen the Fannie guidelines available as yet.
- Max LTV of 105 Percent
- Relief from Mortgage Insurance if it is not required on the existing mortgage
- Value of home as determined by Freddie Mac’s Home Value Explorer
- Must meet Freddie eligibility requirements
- Payment history must indicate the Mortgage has not been thirty (30) days or more past due in the most recent 12 months
- Refinance must either
- Reduce interest rate
- Replace a mortgage that has fluctuating interest rates, balloon or interest only periods, or
- Reduce amortization term
- No change of borrower is allowed
Allowable Collateral and Use of Proceeds:
- 1 to 4 unit primary residences or investment properties
- Second homes
- Proceeds must be used to pay off first liens and up to $2,500 in related closing costs or escrows
- No funds are to be used t pay down or pay off any junior liens (second mortgages). These must be subordinated.
Who is eligible?
Homeowners at risk. Delinquency is not a requirement.
A real estate attorney such as those from the Central Florida Real Estate Council can help the refinancing borrower or the seller and new buyer navigate all of the above new guidelines with their mortgage professional.
Source: Bulletin 2009-5 Freddie Mac Relief Refinance Mortgage (03/04/09)
Grace Anne Glavin, Esq. has 32 years experience as a real estate and estate planning attorney and owner of Morgan Title Company in Winter Springs. She is a founding board member of the Central Florida Real Estate Council.