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.  

Many loan programs have been eliminated over the past year but if you are in a “qualified profession” (residents, physicians, orthodontists and dentists) there are some very attractive loan options even if you are new on the job.

I know of a young couple who had accepted his first physician position in September and were looking to buy their first home.  He had just finished his residency in July were he was earning typical resident salary.  His newly accepted position as an ER doctor was to pay nearly the same per month as he made in 45 days as a resident.  His first pay check covered his down payments and the basic loan requirements allowing them to purchase the home they had worked so hard for.  This doctor program is available in 34 states with some states allowing for 100% financing!

A good option for this type of financing can be located here.

If you have a HELOC (Home Equity Line Of Credit) you may have received a notice that your line has been temporarily frozen or withdrawn.  If you haven’t received this letter it is possible that you will.  Like many people (myself included) you probably didn’t read the twelve pages of fine print in the loan documents that stated that the bank can freeze your line of credit basically at their discretion. Many banks are exercising this option because the vast majority of defaults just happen to be with people who have a HELOC, so these intuitions are rightly trying to stem the rising tide of defaults and unfortunately some good people get hurt in the process.  Also some areas of the country are experiencing value reductions (Southern California, Southern Nevada, Arizona & Florida to name a few) so the high LTV (Loan to Value) HELOCS are also suspect.  These lenders know that the lower the amount of equity a person has the greater the likelihood is of a foreclosure.  

I know of many people who use their HELOC like a bank account.  They get paid with bonuses and commissions and pay down their line then draw off it if they have laps in income.  This method is obviously no longer advisable.  I recommend keeping sufficient reserves in cash and paying down your HELOC as you can.  I do expect this situation to resolve itself later in the year and for the lines to be reactivated but if you must have an active line give me a call as there are banks who are actively  pursuing this business.  Also refinancing your line into a fixed 2nd or combing the 1st and 2nd into one loan may also be a possibility.