Here is the exact text out of the bail out bill.  Pay attention to the word“may” and place extra emphasis on it.

Sec 109 – Foreclosure Mitigation Efforts

Secretary shall implement a plan that seeks to maximize assistance for homeowners and use the authority of the Secretary to encourage the servicers of the underlying mortgages, considering net present value to the taxpayer, to take advantage of the HOPE for Homeowners Program under section 257 of the National Housing Act or other available programs to minimize foreclosures. In addition, the Secretary may use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.

My interpretation of this secition of the bill is that it encourages lenders to work with homeowners to prevent foreclosure by encouraging loan modifications.  My experience has been that if you had a major loss in income and could not make your mortgage payments and now you have regained a large portion of your income and can reasonably make your payments, most lenders will work with you to modify your loan.  This typically means they will add the past loan payments onto the balance of your loan thus taking you out of default.  If you have an adjustable rate loan chances are good that they will fix your loan rate for a period of time.  I am hearing for 5 years. Do not expect them to waive any part of your loan.  I ahve not seen that in this area.  If you have by all means let me know.  If your income does not allow you to make a large portion of your mortgage payment then the next best option is to attempt a short. That would be selling for les than what you owe on the property (assuming of course the market value supports this).

Sec 109 – Reasonable Loan Modifications

Upon any request arising under existing investment contracts, the Secretary shall consent, where appropriate, and considering net present value to the taxpayer, to reasonable requests for loss mitigation measures, including term extensions, rate reductions, principal write downs, increases in the proportion of loans within a trust or other structure allowed to be modified, or removal of other limitation on modifications.

The key word here is “reasonable”.  That does not mean what it would take to get a new loan but a payment  that you can really afford to make.  This would include eating Cup of Noodles and bean burrito's for every meal if needed.  Lenders in the Boise area marketplace will typically drop an adjustable rate mortgage and fix the term to about 5% for 5 years. This is what Countrywide Loan Workout department told me.  Other lenders may differ.  

Over 20% of homeowners with a mortgage (13.7% of the all homes) owe more than their home is worth.

This makes sense on a number of different levels and is not as negative as it looks at first glance.  Values have come down and if - and a lot did - purchased with little or no down payment at the height of the market they obviously owe more than what the home is worth now.  One thing that is overlooked is that many of those buyers choose to keep their down payment in other investments (IRA, cash, etc.) or they payed off other consumer debt keeping their total monthly cash outlay lower. See the previouse post about home appreciation.

On average, homeowners stay in their houses for six years.

At the end of this period, their home has likely appreciated sizable.

For buyers purchasing a home with the intent to live in it for the next several years, tumultuous market conditions do not affect their long-term plans.