Making Homes Affordable (MHA) FAQs

Since March of this year, qualified homeowners have been able to renegotiate the terms of their mortgages through the Making Homes Affordable plan (MHA), a federally-subsidized program designed to check the foreclosure freefall by helping homeowners meet their monthly payments.
Not everyone will qualify, but for those who do—and the government’s hoping that 3 to 4 million do—$75 billion has been set aside to fund the program (and to provide banks a monetary incentive, good news for the borrower).

Here are some frequently asked questions to help you navigate this…

1. What is a loan modification?
This is a change in one or more of the terms of a home loan. Generally speaking, it allows the reinstatement of the loan and provides lower monthly payments. You may also hear it referred to as a mortgage modification, restructuring, or workout plan. Under Obama’s plan, the goal is to help the borrower reduce monthly payments to 31% of monthly income or lower.

2. How do I qualify?
The short answer is that you’ll need to show that modification will make the difference between your keeping the home and losing it. So you’ll need to prove financial hardship—loss of income and/or increase in expenses due to job loss or relocation, divorce or separation, death of spouse or other, illness, or even military service; and you’ll need to prove responsibility–proof of income, and a complete and accurate disclosure of your financial statement.

3. What are the restrictions?
Here are a few: Only those living in the home on which the loan is being paid are eligible. Mortgages on second homes, investment properties, commercial properties, and vacation homes are ineligible. The mortgage must have originated prior to 2009 and be no more than $729,750.

4. What is the procedure?
The bank will look at your monthly income and monthly loan payment. Under the MHA, borrowers can lower their payments to less than 31% of income. One or more of the loan’s terms may be adjusted to meet this. The new mortgage payment will then be in effect for five years.

5. Do I have to be currently delinquent on my payments to get a loan modification?
Not necessarily. One of the goals of the program is to help borrowers before they get into trouble. To that end there’s a provision and incentive which allows lenders to reach out to those homeowners who are not yet delinquent but deemed at risk.

6. Will a loan modification help me stop foreclosure?
Yes, it will. And that’s the program’s main goal. You’ll work with your lender to find a payment solution that halts the foreclosure and/or reinstates the loan.

7. Can my missed payments be added back into my new loan modification?
Yes. Arrears can be rolled into the new loan balance, making it current.

8. Can I do a loan modification myself or should I pay someone to represent me?
Before the MHA program came along the burden of getting a loan modified was largely on the borrower’s shoulders. But incentives for the lenders to get involved are making that less so. Still, it’s not a simple process. For what it’s worth, the Treasury Department is discouraging third-party, fee-based representatives. But the decision is yours. Either way, learn the process (you’re starting that now), think like a bank when putting together your materials, and know your legal rights.

9. How long will the MHA program be available?
Through the end of 2012.

10. So how do I get started?

Be informed, learn all you can, then contact your lender’s loss-mitigation department.