The Making Home Affordable (MHA) program has the ability to help assist home owners who are struggling to make ends meet in our current economic crisis.  This program gives the home owner a temporary reduction in their interest rate to allow them to recover from the economic downturn and keep their home.

The essense of the program works like this…the lender will modify the home’s first (1st)  mortgage to 31% of the household’s gross income.  This reduction remains in effect for 5 years.  After the 5th year the interest rate will rise 1% per year until it reaches the original mortgage interest rate where it remains fixed for the life of the loan.

In order to accomplish this modified mortgage payment the lender has 3 options:

1. Reduce the interest rate down to (as low as) 2%
2. Ammortize the loan out to (a maximum of) 40 years
3. Forgive a portion of the loan principle.

To determine if your income would justify a MHA modification you need to determine if 31% of your gross income is equal to (or greater) than the lowest minimum payment allowed by the lender under this program.  The lowest minimum payment is figured by taking your loan balance plus all accrued late fee, charges and missed payments and ammortizing that amount over 40 years at 2% interest.  Then add in your property taxes, hazard insurance and mortgage insurance (if applicable).  This represents the lowest minimum payment under the MHA program.

Example:  John Homeowner has a $100,000 mortgage with payments of $845/month ($125/mo for taxes and insurance).  John has missed 5 payments and the lender has begun foreclosure proceedings (late fees of $400 and attorney’s fees of $3,000).  So John now owes the lender:

• $100,000 principle balance
• $4,225 in missed payments
• $400 in late fees
• $3,000 for attorney’s fees
• $107,625 Now owed to the lender

John’s lowest possible payment under the MHA program ammortizes $107,625 over 40 years at 2% which equals $325.92/mo PLUS $125 ) for taxes and insurance) which equals $450.92/mo.

Most people understand this lowest payment calculation but fail to understand the gross income calculation.  In order to qualify for the modification John’s income must support $450.92 at 31% of his income.  So John must have a gross income of $1,454.58/month and be able to show that he can support the balance of his monthly obligations at that income after the mortgage modification.  Keep in mind that the more money John makes the higher the modification amount will be to keep it at 31% of his gross monthly income.

Should you find yourself facing a potential mortgage default or foreclosure be sure to contact your lender or a HUD-approved housing counselor.  Both are very interested in keeping you in your home and helping you find a solution to your current economic struggles.  And both will usually provide these services for FREE.

For more information on Foreclosure Prevention visit www.hud.gov or www.CommunityActionUC.org. To find a FREE HUD-approved housing counselor to explore your options call 1-800-569-4287 (TDD 1-800-877-8339).