The new federal program to let people refinance or renegotiate their home loans is expected to help millions of Americans lower monthly payments and avoid foreclosure. So what strings are attached?  Some homeowners have expressed concerns about the impact to their credit report or the tax implications from a short sale or loan modification. Other struggling borrowers who are still paying low teaser mortgage rates might fear their monthly mortgage payment skyrocketing.  Here are some questions and answers on concerns homeowners might have about the Making Home Affordable program.

QUESTION- How will my credit report and score be affected?

ANSWER- According to Norm Magnuson of the Consumer Data Industry Association, a trade group based in Washington.  In most cases, mortgage refinancing does not affect your score since it’s simply a rewritten mortgage, this is especially true of home refinance under a federal program like FHA since one of the terms of eligibility is that homeowners can’t have missed a payment in the past year.  It is still unclear what impact a federal mortgage modification an adjustment to terms of an existing home loan, rather than a new one — will have on credit profiles, however, Magnuson said. Regulators haven’t yet determined how the loan modifications will be reported, if at all.

If you are considering submitting a new application for a loan workout or modification under Making Home Affordable, it means you’ve already missed payments and hurt your credit profile. A loan modification should improve your credit profile in the long-run since the idea is to get you on track for meeting payments.  It might also free up money to pay off other debts.  Credit repair has been increasing in popularity and this may be one of the factors.

QUESTION- Is it possible my payments will be higher?

ANSWER- If you’re still paying a low, introductory rate, it’s possible your monthly mortgage payment will increase slightly under the federal refinancing program. But the idea is to avoid the big interest rate spikes that typically come with variable rate mortgage loan.  After submitting a request for the Making Home Affordable program, your current mortgage lender should give you a “good faith estimate” that includes your new interest rate, mortgage payment and the total cost of the loan. Compare the numbers with your current loan; you might decide that refinancing isn’t an improvement.  You can also check out the payment reduction estimator on the government’s Web site at http://www.makinghomeaffordable.gov.

QUESTION- Should I wait to see if mortgage interest rates come down in a couple of months before applying?

ANSWER- Probably not, since mortgage rates are at historic lows.  Last week, rates on thirty-year mortgage loans inched upward to nearly 4.9%, but that’s still close to the lowest level since the Great Depression.  Ken Inadomi, director of the New York Mortgage Coalition said, “Waiting for mortgage rates to drop further would be irresponsible and could backfire.” Even low intro mortgage rates should not be that much lower than fixed interest rates these days and in some cases, they may even be higher. So it’s probably in your best interest to lock in now to a low rate refinance loan that you can afford.  Remember, the Making Home Affordable program expires on June 10, 2010.

QUESTION- What are the tax implications?

ANSWER- Charges for refinancing a mortgage are tax deductible. The total cost should be evenly divided to be deducted over the life of the mortgage, Inadomi said. Other costs, such as attorney or appraisal fees, are not deductible.You will also have to adjust your mortgage interest deduction if you get a lower interest rate.

QUESTION- Can I try to refinance or renegotiate my mortgage on my own, without going through the program?

ANSWER- Working directly with a lender shouldn’t be a problem if you think you’re not eligible for the federal program. Just beware of getting a third party involved, especially if they ask for an upfront fee.

Suspicious activity reports filed by financial institutions on suspected mortgage fraud increased 44% in the 12 months ending in June 2008 compared with the prior year, the Financial Crimes Enforcement Network, a U.S. Treasury unit, said this week. The White House budget blueprint doesn’t specify the increase spending sought to combat mortgage fraud. Details of its budget will be unveiled in mid-April.  The White House has proposed a total budget of $47.5 billion for HUD for fiscal year 2010, a $7.4 billion increase over the level contained in a House budget bill approved on Wednesday. The $47.5 billion doesn’t include $13.6 billion in economic stimulus funds devoted to HUD projects and programs, of which roughly $10 billion have already been allocated by the agency.

Wall Street reacted positively with markets soaring Tuesday after the Federal Reserve’s historic decision to cut key interest rates again while providing considerable support to offer mortgage relief to the battered economy. According to Mortgage Rate News, the Fed cut led to mortgage lenders across the nation to reduce home mortgage rates as low as 5% for thirty-year fixed rate mortgages for conventional loan types.

The demand for long-term government bonds rose and caused yields to reach historic lows.  The federal government made additional promises to promise to continue to buy bad credit mortgages in an effort to revive the struggling housing markets.  Mortgage Brokers Network executive, Steve Park said, “The government commitment to protect struggling borrowers with new FHA loan program opportunities like, Hope for Homeowners should help restore consumer confidence and mortgage lending.” 

According to Kelly Media Group president, Jason Cardiff, “The fact the lenders are willing to provide loan modifications to homeowners that do not qualify for traditional or FHA refinancing is simply remarkable.”  Cardiff continued, “The interest rate cut by the Fed clearly signals a monumental step by the U.S. to restore trust in our financial systems that should spur more market recovery globally.”  With Obama being nominated early in 2009, we can expect quick action from the President for predatory lending reform, government insured mortgage modifications and significant incentives for lenders who cooperate with short refinance loans, loan work-outs and additional foreclosure prevention measures.

Watch this Mortgage Crisis Video Discussing Predatory Lending 

www.youtube.com/watch?v=pfeZXJ_N-gs

Obama says he will eliminate laws that prevent bankruptcy courts from introducing loan modifications. This is a good thing if banks are going to offer loan modifications why not do it at this level as well.  Obama says he will introduce a HOME score which enables borrowers to compare several home loan products while better understanding the total cost of the mortgage.  The truth in Lending Law is pretty darn clear.  We all should take some responsibility with this mortgage meltdown.  Whether you are a homeowner, loan officer, lender, bank or politician, we all played a role that led to this foreclosure epidemic.  Read the Complete Mortgage Loan Article