Rescue program officially begins: Do you qualify?

WASHINGTON — The Obama administration on Wednesday launched the most ambitious effort since the Great Depression to rescue homeowners from foreclosure, kicking off a likely frenzy among borrowers and lenders alike.

The Treasury program could help as many as 9 million families avoid foreclosure and is expected to cost $75 billion over several years.

The more than 450 banks that have received bailout funds must participate. The nation's four biggest mortgage-servicing companies, which oversee two-thirds of all mortgages, have agreed to participate.

Who qualifies for help? Some answers:

Q: How do I know if I qualify?

A: Your mortgage must predate the start of 2009, you must live in the home and you'll have to provide proof of income. Then ask two questions. First, are you behind on payments or even in the foreclosure process? If the answer is no, ask yourself whether your current mortgage rate is high enough to make it worthwhile to refinance to take advantage of today's low rates for 15-year and 30-year fixed-rate mortgages.

Q: That's it?

A: No. If you think it's advantageous to refinance, you must find out who owns your loan. Most mortgages are bundled and sold into a secondary market, where investors technically own them. If Fannie Mae or Freddie Mac placed your loan into the secondary market, you can contact the company that sends your monthly mortgage statement to discuss the new program. If your mortgage is in the portion of the secondary market where the private sector issued the mortgage-backed securities, you don't qualify.

Q: How do I know who owns my loan?

A: Ask the company that sends your monthly statement. These companies are sure to be swamped with calls this week, so be patient. And be warned: Borrowers have found in the past that mortgage-bill collectors — called servicers — often are less than forthcoming with answers as to who owns the loans.

Q: What if my loan is owned by Fannie or Freddie but I have negative equity?

A: To qualify under the refinance portion of President Obama's plan, you can owe up to 5 percent more than your home is now worth. Thus, many homeowners in California, Florida, Arizona and Nevada, where prices have plunged the most, won't qualify.

Homeowners in 250 high-cost counties can seek help under either track, however, provided they qualify, even if the mortgage is worth up to $729,750.

Q: What about those who are about to lose a home?

A: A lot will depend on whether the mortgage bill collectors, the servicers, think they have leeway from investors to modify the loans. They're being offered an upfront fee of $1,000 and will receive "pay for success" fees for three years if a borrower's modified loan remains in good standing. They're eligible for more fees if they enroll homeowners into this program before they fall behind on payments.

Q: What happens if the servicer agrees to modify my mortgage?

A: First, the servicer has to adjust your monthly payment down to 38 percent of your monthly after-tax income. The servicer can do this by taking a loss on the loan or stretching a 30-year loan into a 40-year, for example. It's allowed to reduce interest rates as low as 2 percent.

Once that threshold is met, the government matches lenders dollar for dollar to move the payment even lower, to 31 percent of monthly after-tax income.

This percentage is calculated on the value of a first-lien mortgage. If a home has a second lien, the servicer will receive an additional $250 if it extinguishes the second mortgage.

Q: Is the modification a permanent fix?

A: The new interest rate would be valid five years. Afterward, it can rise 1 percent a year until the lending rate hits the conforming loan survey rate at the time of the modification. Given today's low mortgage rates, the loan survey rate is likely to be well below the punishing adjustable rates that are at the heart of many distressed mortgages.

Q: Do lenders have to participate in Making Home Affordable?

A: If they're receiving Wall Street bailout money and hope to get more, they have to play ball. Many mortgage servicers are outside this realm, however.

Q: Can servicers be forced to help?

A: The House is expected to pass legislation this week that would allow bankruptcy judges to modify mortgages. This bill, which seems to have support in the Senate, too, would let judges shave off mortgages the difference between what homeowners owe and what their homes are worth. This would give homeowners leverage.

Q: But don't homeowners deserve what they get for overextending themselves?

A: Some think so. There are two parties to a bad deal, however — people who bought too much home and lenders whose underwriting standards failed. Somebody has to lose. The administration is betting that keeping owners in their homes helps prop up prices.