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Who qualifies for mortgage help — and how to get it

How will the Hope for Homeowners Act of 2008, passed by Congress on Saturday, affect as many as 400,000 struggling homeowners who are facing foreclosure? Here are some questions and answers, based on interviews with housing experts.

Q: What exactly will the legislation do?

A: It will allow those who qualify to cancel their old mortgage loans and replace them with 30-year fixed-rate loans for up to 90 percent of the home’s current value. The Federal Housing Administration will insure a total of $300 billion of the loans over a three-year period.

But the decision on whether to write such a loan remains up to banks, which would have to be willing to take a loss on the existing loan in exchange for avoiding an often costly foreclosure.

Q: Who is eligible?

A: Eligible borrowers must have spent more than 31 percent of their monthly incomes on their mortgages as of March 1, 2008. The troubled loan must have originated no later than Jan. 1, 2008, and be on the borrower’s primary residence. The borrower’s income must be verified.

Q: When does the program start?

A: It takes effect Oct. 1 and is scheduled to run through September 2011. The FHA isn’t likely to have it operating at full capacity until next year, however.

Q: Because lenders can pick and choose which loans to refinance, how can consumers determine whether theirs will be selected?

A: Check with the bank or financial company servicing your mortgage, but it may be weeks before they make decisions concerning the new guidelines and assess individual loans.

Even then, temper your expectations.

“Servicers are going to be reluctant to take the government up on their offer,” said Mark Zandi, chief economist at Moody’s Economy.com. “The earliest they’ll start taking them up on it is early next year. And even then it’s likely to be modest.”

Q: Is there anything a homeowner can do to improve chances of benefiting from the program, such as crunching numbers to make a case for the bank?

A: Not really. The best step is to keep up your payments as best you can.

Q: If you’re barely keeping ahead of bills and are underwater on your house, doesn’t the program provide an incentive to NOT pay your mortgage so you can qualify?

A: No. If your situation deteriorates enough, the bank may reject any possible new loan.

“Turning yourself into a financial basket case is not going to work,” said Dan Seiver, a finance professor at San Diego State University. “If you turn into a complete deadbeat, the servicer is going to just foreclose and dump it.”

Q: So what should I be doing now besides trying to keep up with payments?

A: Talk to a local credit counselor and call the Hope Now alliance’s toll-free hot line — an industry group trying to coordinate a response to the mortgage crisis — at (888) 995-HOPE (4673). It is available 24 hours a day to provide mortgage counseling in multiple languages.

Mary Thomason, director of resource development for the Impact Group of Atlanta, a housing-counseling group, also suggests tracking your expenses and income closely so you can forecast your cash flow for the next six months and get better control of your finances.

Q: If the banks and lenders refuse to write these loans, then what?

A: Public and political pressure may prompt them to participate. If not, and more people continue to lose their homes, Zandi said, the next White House administration may subject them to additional regulations or investigations if they remain unwilling to take on the risks.

Q: What happens if I’m able to sell my home after I refinance?

A: You must agree to share any profits from the resale with the government based on a sliding scale, and FHA must be repaid the equity.

Wednesday, July 30, 2008

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