October 2008 Legislation Can Help You Save Your Home From Foreclosure

If you are among the thousands of homeowners who are facing foreclosure in the current housing market, you certainly are not alone. Many families are finding that they cannot afford the homes that were financed during the subprime mortgage boom, when income and down payment (or lack of)did not matter.

Lenders wrote loans for basically anyone with a pulse, without verifying that the borrower could actually pay for the home. Other families have just fallen behind due to the faltering job market that has seen so many businesses and companies go under, and the resulting loss of income has led many to become in arrears on their mortgages.

Housing Bill To Help Thousands Of Borrowers

Government legislation passed on October 1, 2008 can help you if you have become behind on your mortgage, assuming that you can actually afford to make the payments on your home. This legislation is known as the HR 3221 housing bill. These new guidelines are maintained by the office of Housing and Urban Development (HUD) and a full description of the housing bill is available at the HUD website. HR 3221 is administered by the Farmers Home Administration.

To be eligible for housing refinance under the new guidelines, a borrower must be able to prove that they are capable of paying for the home they are in. HUD wants to see that your income is sufficient, and they utilize a 29% ratio. This means that if the total combined monthly income for your household (gross wages) is $4,000, your mortgage payment should not be more than $1160 under the new HUD government guidelines.

Other Guidelines To Qualify

In addition to proving to the government that you can pay for your home, your lender must agree to take a loss (called short pay) on the current mortgage instrument. The mortgage will be purchased by the FHA (Farmers Home Administration) for 85% of the current fair market value, including closing costs not to exceed 90% of the current fair market value of the appraised home.

Many lenders are more than willing to absorb this loss. As you might have seen on the evening news during the financial crisis, many lenders were forced to sell off mortgage notes to other lenders for as little as twenty-five cents on the dollar. So HR 3221 helps the lender as well.

Additional Options To Consider To Avoid Foreclosure

You can also seek out an online lender who specializes in mortgage refinancing. A traditional mortgage refinance can allow you to refinance for a longer term, which will allow your monthly payments to be smaller and for more years. Additionally, by refinancing an adjustable rate mortgage to a fixed rate, you will avoid the inflated interest that is associated with the adjustable rate mortgage and move into a fixed, predictable payment for a longer period of time, again, with reduced monthly payments that better fit your budget. Online lenders are notorious for finding the right mortgage refinance product that helps borrowers avoid foreclosure.