Information on the Federal Recovery Act for Refinancing Mortgages

Government refinance programs help stop foreclosure.

In a response to the housing market, mortgage and economic turmoil, the Obama Administration introduced the Federal Recovery Act. The act covers many aspects to help Americans with their personal finances. One of the provisions of the act provides help to Americans that are seeking a refinance of their home to avoid foreclosure.

Significance

The purpose of the Federal Recovery portion of the act for refinancing mortgages is to help homeowners that are struggling with or already in default on their mortgage payments to gain a more affordable mortgage payment by refinancing. The refinance portion of the act is being governed by the Federal Housing Administration (FHA).

Time Frame

The refinance program under the act began in October 2008 and was expected to run until the end of September of 2011. An assessment of the program may, however, expand and extend the program.

Eligibility

For the mortgage borrower to be eligible for the refinance program, certain requirements must be met. First, the mortgage being refinanced must be on a primary residence that the borrower is living in currently. Second, the current mortgage payment must utilize more than 31 percent of the borrower's total monthly income. The borrower applying for the refinance must also sign a certification statement saying that they have not intentionally defaulted on their mortgage to be able to refinance. Finally, the borrower cannot have been convicted of fraud.

Access

Homeowners seeking to apply for the refinance program under the recovery act must contact an FHA-approved lender to start the refinance process. The FHA-approved lender is responsible for taking the applicant's application and assessing the borrower's ability to qualify for the refinance. As part of the process, the FHA-approved lender may contact your existing mortgage lender and negotiate a reduced mortgage balance. If the current mortgage lender reduces the mortgage balance owed, then the refinance funds will pay off the current lender at the new balance. All of the mortgages offered under the refinance program are 30-year fixed rate mortgages.

Effects

The FHA and the U.S. Housing & Urban Development (HUD) estimate that 400,000 borrowers in danger of foreclosure will be eligible to refinance under the recovery act and save their homes. While the program assists individual borrowers, the effects are expected to ripple out to help entire neighborhoods, communities and eventually the country. In addition to the refinance portion of the act, the Community Development Block Grants under the act is expected to infuse $3.9 billion into rehabbing foreclosed properties so each can be sold in an effort to help stabilize the housing market.

References

• HUD: Housing and Economic Recovery Act of 2008 FAQ