How how did it all finally shake out in Washington earlier this month, and what are the details of Obama’s Making Home Affordable homeowner assistance plan?  In an attempt to provide brevity and a clearer understanding I have summarized the key qualifications.  In case you aren’t aware, The Federal Government has set aside $275 Billion to assist homeowners in need of financial assistance as a result of the current economic meltdown.  They hope to help 9 million households with the plan.

Qualifications are as follows:

  1. The Home must be an owner-occupied, primary residence.  This must be documented by your current credit report.
  2. The Homeowner must provide a documented hardship such as losing a job.
  3. The existing loan cannot exceed the high cost area FHA conforming loan limit for single family homes, currently $729,750
  4. Your lender is given incentives to reach certain milestones.  For example:  after your loan has remained current for 3 months, the lender receives $1,000.  Further, your lender will receive $1,000 each year you, as borrower, remain current for up to 3 years.
  5. The Homeowner can receive $1,000 cash, used toward the reduction in principle for up to 5 years if mortgage is kept current.
  6. Lenders are aiming to reduce monthly payments so the homeowners monthly housing expense does not exceed 31% of Gross monthly income.  The plan will attempt to do this by first, reducing the interest rate to as low as 2%.  If this does not accomplish the desired ratio, the lender will extend the loan term up to 40 years.  Finally, if the ratio is still not achieved,  the lender will forbear enough principle amount at 0% interest to accomplish the 31% ratio.
  7. The final, and most controversial, piece to this puzzle is the recently passed Cram Down legislation which gives bankruptcy judges the ability to order lenders to reduce the principle balance to fit the desired income ratios for each homeowner.

The ultimate success rate for this plan is yet to be seen.  In California there is concern that most of us will be left out of the plan due to the fact the few, if any, homes qualified for FHA financing.  This is particularly true in high cost areas of Los Angeles, San Francisco, and other coastal communities.  Others question President Obama’s objective of helping only those “responsible” homeowners who have fallen victim to the economy.  Most agree this plan alone will not be enough to pull us out of the housing slump- at a minimum it’s a start.