This is choice, from the San Francisco Chronicle:
To qualify, you must be at least 90 days delinquent and live in the home as your primary residence. You must owe at least 90 percent of the home’s value. It’s fine if you owe more than it’s worth.
Your mortgage must be owned or guaranteed by Fannie Mae and Freddie Mac or held by one of the participating loan companies.
If you meet these requirements and can document your income, your servicer will reduce your monthly mortgage payment – including property taxes, insurance and association dues – to 38 percent of your gross income.
The reduction can be accomplished in one or more ways:
— Reducing the interest rate, but not below 3 percent. (The new rate, if below market, goes back to a market rate after five years.)
— Extending the term of the loan up to 40 years.
— Reducing the principal on which monthly payments are calculated. Unpaid principal is added to the loan balance and due when the homeowner sells or refinances. The reduced interest payments never have to be repaid.
If you owe more than the home is worth, the plan will only reduce principal down to 100 percent of market value, according to an official for the Federal Housing Finance Agency, which supervises Fannie Mae and Freddie Mac.
If all three of these maneuvers can’t reduce your payments to 38 percent of income, you won’t get a fast-track modification but could still request a customized deal, says the official, who spoke on the condition of anonymity.
The streamlined process looks only at income, not assets. If you refinanced your home to buy a Mercedes or own another home, you won’t be expected to sell them to pay your mortgage.
Peter Schiff, president of Euro Pacific Capital, predicts that many homeowners who have little or no equity will stop paying their mortgage and then reduce their income to get the biggest payment cut possible. They could stop working overtime or, if two spouses work, one could quit. After the modification, they could try to boost their income again.
“This is a once-in-a-lifetime opportunity,” Schiff says. “People are going to feel like complete morons if they don’t participate. The people getting punished are the ones who never made an irresponsible decision to buy a house they couldn’t afford.”
The government is offering loan servicers $800 for every homeowner they get into the plan.
Schiff predicts that loan agents “will be cold-calling people trying to get them into it. Just like they encouraged people to overstate their income to get a bigger loan in the first place, now they will encourage them to understate their income to qualify for a smaller loan.”
To prevent fraud, the government says a borrower “must certify that he or she experienced a hardship or change in financial circumstances, and did not purposely default to obtain a modification.”
The housing agency official doubts that people will stop paying just to get a modification because it will hurt their credit record, and that will make it harder to get a loan and possibly a job.
“Credit bureau reports are checked by employers. They’re taking a big risk missing three payments just to get a lower rate,” she says. An existing lender who sees your credit score deteriorate could also cut back on your credit and possibly raise your rate.
Don’t cry. There’s plenty more.