Unemployment and disability benefits for Lorrin and Dianna Montag run out next spring, and it’s too soon to know if they will qualify for an FHA loan modification.
Associated Press
WASHINGTON -- Dial back the pie-in-the-sky projections.
Last month, the Obama administration launched a program to help homeowners with loans insured by the Federal Housing Administration. About 850,000 FHA borrowers are behind on their payments or in foreclosure, yet the program will assist just 45,000.
The effort targets homeowners who were ineligible for the government's other loan modification plans. But the decision not to rescue more FHA homeowners reflects the Obama administration's need to protect the financial health of the agency, and to set more realistic goals for helping borrowers as its other loan modification programs fall short.
On Friday, the FHA said its financial reserves had sunk below mandatory levels for the first time in its 75-year history.
Other loan modification programs focus on reducing the interest rate, but the FHA program sets aside up to 30 percent of the outstanding loan balance, interest free. If you have a $200,000 mortgage, you'll get charged interest on only $140,000, saving more than $300 a month, based on a mortgage rate of 5 percent.
The homeowner is still on the hook for the full principal amount when the house is sold or the mortgage is refinanced.
For each loan modification, the government will pay the lender up to $1,250. If 45,000 people sign up, that works out to around $56 million in costs. But HUD estimates the program will ultimately save $370 million in losses from avoided foreclosures.
But there's a catch: Borrowers who spend more than 55 percent of their total pretax income on any recurring monthly debts including home and car loans and credit card debt are out of luck.
Borrowers who think they may qualify can call 1-888-297-8685.
