Homeowners may be able to reduce mortgage payments as a result of recent federal programs.
Last October, President Bush announced the ‘Hope for Homeowners’ program. This was followed in February by two ‘Making Home Affordable’ programs announced by President Obama. A brief overview of these programs follows.
Hope for Homeowners: The intent of this program is to require lenders to refinance certain mortgages at a reduced principal balance. Although the guidelines are still being fine tuned, the lender is generally required to accept a payoff of your existing mortgage for an amount equal to 90% of the current fair market value of your home. Excess mortgage debt is forgiven. You are then liable for a new mortgage for the 90% amount, which mortgage will be a fixed interest, 30-40 year loan. The fine print: To be eligible for this program, the mortgage balance of your home cannot exceed $550,440. Borrowers in bankruptcy are eligible. Also, you must agree to share a portion of the equity in your home with the FHA (so, if you sell the home, the FHA gets a portion of the profits). Plus, there are closing costs and limitations on additional debt against the home.
Making Home Affordable I (Refinance). The first MHA program is to assist homeowners refinance their mortgages to take advantage of today’s more favorable interest rates and payment terms, without regard to whether they have any equity in their homes. To qualify for this program, you must be current on your mortgage. In addition, the balance of your first mortgage must be less than 105% of the fair market value of your home. This last requirement is a major hurdle for many homeowners.
Making Home Affordable II (Modification). The intent of this program is to enable the government to pay financial incentives to mortgage lenders to modify mortgage terms. Here again, the details of this program are still changing, but in general terms you apply with your mortgage lender to modify your mortgage. The lender can reduce your interest rate (to a minimum of 2%), extend your payment terms (to no more than 40 years), defer repayment of a portion of your principal to the end of the term (a balloon payment) and even forgive a portion of your principal - all to the extent necessary to decrease your mortgage payment (including taxes, insurance and association dues) to no more than 31% of your gross monthly income.
The fine print: If your aggregate debt-to-income with all other debts exceeds 55%, you will be required to obtain HUD counseling. Prior to modifying the mortgage, the lender puts you on a three-month trial to see if you are able to satisfy the reduced terms and, if successful, will then extend the terms for five years. After the five years, your interest rate is subject to increase (no more than 1% per year) to the rate cap set forth in your modification agreement (which is not greater than your original fully-capped mortgage rate). Over the five-year period, the government will make payments on your behalf to your lender to help reduce the principal balance of your loan (up to $5,000 in the aggregate). To qualify for this program, your first mortgage must be no more than $729,750 and your mortgage payment (including taxes, insurance and association dues) must be more than 31% of your gross monthly income.
As you might guess, these programs are intended to help people stay in their homes. The programs don't help with second homes or investment properties.
As a final caveat, remember that the foregoing is just a broad brush overview. There are many details and a fair amount of complexity in the programs.
Monday, May 11, 2009
Monday, May 4, 2009
Good Fences Make Good Neighbors
A well-constructed contract doesn't just protect you, it may also help keep your friendship intact.
I was speaking with a close friend the other day who described how the lack of a contract with his business partner nearly cost him a good friend. Fortunately, he was able to have a heart-to-heart conversation and the two partners agreed to put their understandings in writing.
On the other hand, I have seen too many times where friends or family members go into business together on nothing more than a handshake, only to find later that their expectations were dramatically different. These cases often lead to a loss of love in a family or between friends. (I don't believe I've ever spoken with partners at the outset of their partnership who didn't think they would get along and everything would work out. It would be a truly rare situation where anyone would enter into a partnership with any other expectations.)
Business attorneys aren't often trained as relationship counselors (I certainly am not) and they don't advertise to help keep people together. Still, a well-written contract gives the individuals involved a clear understanding of what is expected and may thereby nip issues in the bud that otherwise could be costly. In addition, the process of discussing the issues involved may help you learn sooner (rather than later) about fundamental disagreements.
The bottom line: In addition to protecting yourself legally, you may be able to avoid some personal heartache by having your business relationships reduced to a contract. The few dollars you spend for the well-written contract may pay dividends down the road in savings from litigation fees avoided.
I was speaking with a close friend the other day who described how the lack of a contract with his business partner nearly cost him a good friend. Fortunately, he was able to have a heart-to-heart conversation and the two partners agreed to put their understandings in writing.
On the other hand, I have seen too many times where friends or family members go into business together on nothing more than a handshake, only to find later that their expectations were dramatically different. These cases often lead to a loss of love in a family or between friends. (I don't believe I've ever spoken with partners at the outset of their partnership who didn't think they would get along and everything would work out. It would be a truly rare situation where anyone would enter into a partnership with any other expectations.)
Business attorneys aren't often trained as relationship counselors (I certainly am not) and they don't advertise to help keep people together. Still, a well-written contract gives the individuals involved a clear understanding of what is expected and may thereby nip issues in the bud that otherwise could be costly. In addition, the process of discussing the issues involved may help you learn sooner (rather than later) about fundamental disagreements.
The bottom line: In addition to protecting yourself legally, you may be able to avoid some personal heartache by having your business relationships reduced to a contract. The few dollars you spend for the well-written contract may pay dividends down the road in savings from litigation fees avoided.
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