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How can I benefit from the Obama stimulus bill?

Friday mid-morning , February 27, 2009.

Updated: March 5.

Great news! The House approved today the cramdown bill in a 234 - 191 vote.

It’s important that you realize that you don’t have to wait to file for bankruptcy to enjoy the fruits of this bill —from now on, you can negotiate your loan modification with your mortgage servicer with a dramatically improved leverage, which will reach its full potential when it’s passed into law. It shouldn’t be long, both the House and Senate bills were initiated simultaneously.

So, let’s keep on calling our senators for their vote to make this bill a law: (202) 224 - 3121.

On a very related issue, The Homeowner Affordability and Stability Plan contained in the Obama approved stimulus bill is a milestone reflecting the rapid changes in new programs aimed to help ailing homeowners.

I know I should take more time to study it, but I also know that many of you are already facing foreclosures or are in the process of filing bankruptcies, and this program will have a major impact on these and other issues, so, I don’t want to delay.

This comprehensive program not only provides help to folks whose debts are underwater, but also aims to prevent this situation by lowering the monthly mortgage payments to borrowers at risk of default.

But, let’s focus on the help to those facing foreclosure and bankruptcy filers —the ones in dire need of help. Let’s go over the most salient points

It means that if you have a first mortgage that meets the loan limits (under approximately $729,750) on your primary residence, and you have complied with asking your bank for a loan modification, you are eligible to have the judge wipe out part of your mortgage debt when filing for bankruptcy: your underwater portion, or the difference between the amount you owe on the mortgage and the current market value of your house. This would facilitate the judge to come up with an easier workout plan, which would potentially allow homeowners to stay in their homes!

The Plan makes important changes to the loan modification terms. All borrowers facing a foreclosure on their property are strongly encouraged to request their banks a loan modification on their mortgage —do it right now, if you haven’t done so already, you may be in danger of losing important benefits from this program.

The Plan states:
The Obama administration will seek careful changes to personal bankruptcy provisions so that bankruptcy judges can modify mortgages written in the past few years when families run out of other options.

and then…
When an individual enters personal bankruptcy proceedings, his mortgage loans in excess of the current value of his property will now be treated as unsecured. This will allow a bankruptcy judge to develop an affordable plan for the homeowner to continue making payments. To receive judicial modifications in bankruptcy, homeowners must first ask their servicers/lenders for a modification and certify that they have complied with reasonable requests from the servicer to provide essential information.

requiring certain loan limits…
This provision will apply only to existing mortgages under Fannie Mae and Freddie Mac conforming loan limits, so that millionaire homes don’t clog the bankruptcy courts.

What does this mean?

It means that if you have a first mortgage that meets the loan limits (under approximately $729,750) on your primary residence, and you have complied with asking your bank for a loan modification, you are eligible to have the judge wipe out part of your mortgage debt when filing for bankruptcy: your underwater portion, or the difference between the amount you owe on the mortgage and the current market value of your house.

This would facilitate the judge to come up with an easier workout plan, which would potentially allow homeowners to stay in their homes!

And finally, I recommend going over Help for Homeowners from The White House blog to dig into some further advice, including the following: 

My loan is scheduled for foreclosure soon.  What should I do?

Contact your mortgage servicer or credit counselor.  Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower’s eligibility.  We support this effort.


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