Today is a new day for borrowers in danger of losing their homes to foreclosure. Today is the first day that the Housing and Economic Recovery Act of 2008 goes into effect. This act was designed to motivate lenders to work with the consumers in keeping their homes. In the past, despite the current economic crisis many lenders have found themselves in, they have not been so willing to work with the borrowers to help them keep their homes from foreclosing. That all hopefully stops today with HERA.
As the government recognizes the enormous load of future foreclosures that are coming and the repercussions that brings to our economy they have decided to step up to the plate. According to HERA (Housing and Economic Recovery Act) the Federal Government will now be insuring all new, reduced 30 yr fixed mortgages in attempts to motivate lenders to reduce struggling borrower's loan amounts of up to 90% of the property value. In other words, the bank slashes your mortgage amount in half, you get to keep your home, lower the mortgage payment and in return the bank saves itself from not only the whole costly foreclosure process but now has a federally insured loan and a paying customer. It's a win-win for everyone.
Though it would be ideal, not everyone is eligible for this perk of HERA. In order to qualify you cannot have been convicted of fraud, certify that you have not intentionally defaulted on an existing mortgage and did not obtain the loan fraudulently (you wouldn't believe how many borrowers fudged their applications to get a loan), your mortgage payment must exceed 31% of your monthly income as of March 01, 2008 and last but not least you must occupy the home as a primary residence and the home must be listed as so. Sorry second homeowners and investors but you don't make the cut!
You should know that lenders are NOT required to participate in this program though it would be in their best interest to do so. Another important factor to understand is that if your lender does agree to this and your loan amount is reduced you are not allowed to take any second mortgages within the first five years. You must also split 50% of your equity with FHA when you sell it and there is holding period of which I am not aware of how long. Not a bad trade-off if you ask me.
All in all, this Act is a step in the right direction. It's the strong motivation the lenders need to help homeowners keep their homes. I applaud the government for stepping up and passing this act. I can't wait to see the positive effects it has on our economy in the future. If you're interested in finding out more about the HERA program you can visit www.HUD.gov.
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