Is the New Mortgage Bailout a Financial Life Raft for You?

Compiled by the DiversityInc staff

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December 07, 2007

President Bush has unveiled a deal with the mortgage-banking industry to freeze an estimated 1.8 million loans for the next five years to help borrowers who may lose their homes because they were given credit they couldn't handle. Will you get help from this plan, or are you in trouble?

The plan is aimed at about 1.2 million subprime-loan holders on the verge of drowning in mortgage debt but who are not a total lost cause. But it won't help the 600,000 borrowers who are now in foreclosure, have refinanced their homes, or are more than 60 days delinquent on more than one payment over the past year.

Here's what you need to know and do to find out if you are eligible:

Determine the type of loan you have. The new initiative only covers a subset of borrowers whose loans were issued between Jan. 1, 2005, and July 31, 2007, and whose interest rates will adjust upward between Jan. 1, 2008, and July 31, 2010. The new plan also only protects loans that have been packaged into securities, not those held by banks.
Contact your credit counselor. Being proactive is key; no one will contact you automatically. Borrowers should contact their credit counselors or loan-service providers, who would sort them according to their credit and payment history and ability to pay. While missing one mortgage payment won't totally disqualify borrowers, they can't have been more than 60 days late more than once in the last 12 months.
Pick the option that works best for your financial situation. There are two options for borrowers under the plan: the rate-freeze option and a refinance option. In order to qualify for the rate-freeze option, borrowers must live in their own homes and face a payment increase of more than 10 percent when their rates reset for the first time. This program is aimed at helping borrowers who are not good candidates for refinancing because of a poor credit score, have little or no equity in their homes, or a history of late payments. The refinance option is aimed at borrowers who have a decent credit score and home equity.
If you have questions, ASK! While borrowers are encouraged to contact their mortgage companies first, they can also call 1-888-995-HOPE, which provides counseling to homeowners with mortgage problems.