Who qualifies for the new Government Backed Mortgage Bailout?

Mortgage Bailouts are typically plans designed to allow a homeowner to partially "bail out" of their mortgage loan. In most cases, it doesn't mean that all debts are forgiven. Generally, the plan just aids the homeowner so that the home is not lost to foreclosure. This can involve either freezing or reducing the mortgage interest rate for the loan.

The new government sponsored mortgage bailout initiative will cover as many as nine million mortgage holders. It has two main components.

First, the government will offer financial incentives and subsidies to persuade mortgage-servicing companies to ease up on borrowers who are in financial straits so severe that they risk losing their homes. Borrowers will have to sign affidavits attesting to their financial hardships. In return, they will see their interest rates drop to as low as 2%, their payment periods lengthened, and other modifications aimed at bringing their monthly payments to 31% of their income -- commonly considered a reasonable ratio. This mortgage bailout program is limited to mortgages with outstanding principal balances up to but not exceeding $729,750, in the case of single-family homes.

As part of the new mortgage bailout plan, lenders will receive up to $3,500 from the government to participate, with the government also matching a portion of the lenders' costs, dollar-for-dollar. Homeowners will get as much as $5,000 apiece in federal money to reduce their outstanding balances, as a way to encourage them to stay current on the modified mortgages.

It is worth noting that this particular mortgage bailout program will not help people who bought homes merely as investments; the program is designed for those who live in their homes. That being said, every lender has their own set of mortgage bailout programs design specifically for investment properties independent of the government backed mortgage bailout plan. So it is still worth pursuing your option with our loan modification attorneys.

The second main component of the mortgage bailout plan calls for Fannie Mae and Freddie Mac, the government-backed mortgage giants, to refinance loans for millions of borrowers who may owe more than their homes are worth, even if they are wealthy enough to afford their current payments. There is no income ceiling for beneficiaries. But they must have mortgages held or guaranteed by Fannie Mae or Freddie Mac, and they cannot owe more than 105% of the current value of their home.

Under the new mortgage bailout loan-modification plan, a hypothetical borrower earning $4,000 a month, with a $225,000, 6.5% loan with 28 years remaining, could see the rate fall to 2.73%, and the monthly payment drop to $1,240, from $1,737. The government would cover about $155 of the $495 payment reduction. Principal payments and federal subsidies would reduce the outstanding balance to $193,000 after five years. Without the federal program, the principal would have fallen to $208,000, assuming the borrower kept current.

The government's new mortgage bailout guidelines has accelerated efforts already under way at the nation's largest banks to process the loan modifications we submit in extremely high volumes.