The Obama Plan-Simplified

Recently, President Obama produced a plan  to help out approximately 9 million families in jeopardy of losing their homes, called the ‘Making Home Affordable’ plan, or MHA. Since it’s release, there has been a lot of confusion on how the plan works, and who will qualify. Here is a broad overview of the plan and who will benefit.
The basic idea of the plan is to get your monthly payments as close to 31% of your gross income as possible. This can be done via a refinance, or by modifying the terms of your existing note to get you in the ballpark. In order to qualify for a refinance, you must owe 105% or less than the home’s market value. Since that is a rarity these days, we’ll focus on the modification side.
In order to qualify, you must first have a payment that exceeds 31% of your gross income. This is your Housing Debt to Income ratio. You also must occupy the property as your primary residence, not an investment property. And it must be a Freddie Mac or Fannie Mae securitized loan. At present these are the only types of loans being considered for the MHA plan.
Under the plan, the lender will do whatever it can to get the payments to that 31% threshold, and put the homeowner on a three month trial period at that payment. Once three consecutive payments have been made, the modification documents will be drawn up and sent to the homeowner for signatures. Once those documents are returned to the lender, the modification will become permanent.
It is important to note that during the ‘trial period’, payments must be on-time, and in certified funds, but once the mod is permanent, payment options will be normalized.