Do you qualify for a mortgage bailout?

President Obama and Tresury Secretary Geithner are spending $75 billion to help homeowners stay in their homes. Is there something in there for you?

The quickest answer can be found by looking at how much you earn, not how much you owe. If your total monthly home payments (interest, principal and taxes) are greater than 31% of your monthly, pre-tax income you may qualify. Even if your home is worth less today than what you owe, you may be able to refinance.

Here’s an example from the Treasury Dept. Let’s say you paid $230,000 for a home in 2006. It’s now worth $189,000. If you can prove to your lender that your payments are greater than 31% of your income and you are at risk of default, you may be able to get your interest payment reduced. A subprime loan that cost you 7.5% today or $1,500 a month, could get lowered to 4.4% or $1,100 a month, with the lender and the government both picking up some of the cost of the payment reduction.

What if your payments aren’t higher than 31% of your income? The Administration has also proposed a way to help homeowners who aren’t at risk of default refinance, even if they owe more than what their house is worth. Normally it’s difficult to refinance if you owe more than 80% of what your home is worth. But under new rules you may be able to refinance up to 105% of the home’s value. Not all mortgages will be eligible. They have to be owned or insured by Fannie Mae, Freddie Mac or one of the other government-backed programs. High-value, “jumbo” loans may not meet the test.

The new plan fixes some of the problems in the structure of the mortgage market today. There is a $1,000 incentive payment for mortgage servicers to renegotiate loans. Previously they didn’t have much incentive.

The new loans can apply to homeowners who are current in their payments. You do not have to have missed payments to get the bank’s attention. As long as the borrower stays current on their new loan they can also get an incentive of $1,000 per year for five years, applied to pay down their mortgage principal.

The new loan subsidies do not apply to second homes or investor-owned properties. The complete eligibility guidelines will be out on March 4, which is when mortgage lenders can begin accepting applications. There’s more discussion of the new plan at the White House’s blog.

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