Home Subsidy for Refinancing

Home Subsidy for Refinancing - 3/06/09

Kim: The Obama Administration announced the new "Making Home Affordable Program". This program is designed to help between 7-9 million homeowners make their mortgage payments either by refinancing their home or modifying their existing mortgage. Here to discuss these programs is attorney Michael Solomon.

Kim: Mike, tell me how the refinancing program works.

Mike: The Obama program will make it easier for people to refinance their homes. Interest rates are at historically low levels, but usually to qualify for these loans you must have equity of at least 20% in your house. Because housing values have dropped so much many people who thought they had at least 20% equity in their house do not. Here is what the program does:

New Mortgage - Any loans that are owned or guaranteed by Freddie Mac or Fannie Mae may be eligible to refinance their home into fixed 15 or 30 year mortgages at low rates even if their first mortgage exceeds the value of their home by up to 5%. You do not qualify if you are delinquent on the mortgage. This program is scheduled to end in June of 2010.

Kim: The second part of the program allows people to reduce their mortgage payments. How does this program work.

Mike: Kim this is the most expensive part of the program, over $75 billion. Here is how it works:


  • Lender must reduce monthly payments to 38% of the borrower's income.
  • Then the government will match monthly payments to reduce the payments from 38% to 31% of income. This will continue for five years. After five years the interest rates can be increased by 1% per year until it hits the current market interest rates but no more government subsidies of payments.
  • Payments are reduced by lowering interest to as low as 2%, then if that doesn't work stretching out the mortgage to 40 years.
  • The government will pay up to $1000 per year for 5 years to reduce your principal if you don't miss a payment.


  • Loans issued prior to 2009 and loan is at risk of default because of a drop in income or increase in interest rates.
  • A single family personal residence or 4 unit building one of which is your home
  • Limited to mortgages of up to $729,750 for a single family home.
  • The modification program ends on December31, 2012.
  • It is possible to qualify even if you are delinquent on your mortgage.

If you have any questions you can call a HUD approved housing counselor. Call 1-888-995-HOPE for free help on this program.

Kim: Thanks for trying to simplify a complicated program. If you have any questions for Michael, e-mail us at weekendmorningshow@wkyc.com, and he will try to answer your questions next week.