Cramer: Getting Your Slice of the Mortgage Rescue Pie


I had to laugh when I saw that clip on CNN displaying, in cartoon panels, how the $1 trillion-plus “stimulus” plan winds its way from Washington, through various pork-laden projects, before making its way into the wallets of average Americans at a rate of $15 per paycheck.

The last frame showing a happy American holding her extra $15 is priceless. I’m still looking for the frame where her homeless grandchild is left holding the tab.

I’ve never seen sausage being made, but the clip gave me a good idea.

And please - no letters or emails about how the latest bailout plan only costs $800 billion. Even the CNN cartoon admits that, with interest payments on the bonds we’re selling on the global fixed-income markets, the final number should be well north of $1 trillion before we’re through. And that's not even counting what happens if we have more trouble with our banking system. (I know what I'd do about the banks, if I were President.)

Hey, I’m all for stimulus, but give me a break. Most of the spending doesn’t even happen right away, so the idea that we’re going to get an immediate shot of fiscal adrenaline is a myth, right up there with the Easter Bunny and gold at the end of the rainbow.

Maybe we’ll have better luck with Washington’s new $75 billion plan to restructure mortgages. A lot of people have been asking me about it, but I really needed to see some details emerge before I could tell how effective it would be for strapped homeowners.

Here’s the long and short of it: If you own a home, hold a good job and your monthly mortgage payment is approximately 31 to 38% of your income, you stand a good chance of being eligible for help under the plan. From what I’m seeing, mortgage holders who are facing foreclosure or have a ballooning adjustable-rate mortgage should cut right to the front of the line.

The good news for most Americans is that, if Fannie Mae (Stock Quote: FNM) or Freddie Mac (Stock Quote: FRE) owns your mortgage, the chances of refinancing with a lower rate mortgage seem pretty good, too.

Any red flags for the Fed and banking officials who have the last word on mortgage help? Well, if your home has declined too far in value, I don’t think the banks will come on board. Also, if you’re heading to foreclosure and you’re out of a job, then my heart goes out to you. But don’t expect any help from Uncle Sam. Also, if you hold a jumbo mortgage worth more than $417,000, you’re likely not eligible for federal help.

The operative word here is “salvageable.” If a little nudge from Uncle Sam will put you back on the road to mortgage stability, you’re a good candidate for help.

How do you get started? Let’s have a look . . .

Read up on what Washington has on the table. The full details of the mortgage bailout plan won’t be unveiled until March 4. But the White House has prepared plenty of good reading on the subject. The also has a great column on how to make the housing rescue plan even better.

Talk to your lender. The White House, in tandem with the U.S. Treasury Department, is still figuring out how this all will work. But one thing you can do right away is contact your mortgage lender and see where you stand. Almost all lenders, and certainly the major ones, are holding off on foreclosures right now. They’ve also expanded loan modification departments to handle the expected crush of mortgage holders looking to cut a new deal. The early reviews aren’t great—the banks look like they’re really dragging their feet on loan modifications. But the impetus from Washington may finally get them off the dime, especially since Washington is promising to take some of the financial load off of the shoulders of lenders who are cutting new mortgage deals. Many banks, like Washington Mutual, allow you to apply for a loan modification online. Or, after a brief phone interview, they’ll send a loan mod application package to your house.

Get your paperwork in order. Yeah, I know. What could be more fun than poring over old tax returns and pay stubs with a lender who probably wishes he wasn’t there in the first place? But if there is anything Washington loves (and Wall Street bankers need) it is a paper trial showing that you have the financial bona fides to warrant a new mortgage deal. So gather the last three years of tax returns, two months of pay stubs, two months of bank statements, and retirement and investing accounts (quarterly statements are usually fine). Don’t forget things like divorce decrees, especially if they show your alimony or child support payments are ending (thus freeing up extra cash).

Get as much cash together as possible. The housing bailout plan purports to help borrowers who owe more than 80% of their loan to refinance into a new loan. But the banks are likely to balk at this. In the end, unless you hold a Federal Housing Administration mortgage, refinancing may be more expensive than you think. Why? Because most refinancing programs, based on eligibility requirements, may force you to kick in as much as 20% in home equity value. For the millions of mortgage holders who have seen the value of their homes plummet, this is no easy task.  But if you’re close to the 20% threshold, but not over it, see if you can engineer a quick loan from a family member, or dig deep into savings if you have to. The financial benefit of a lower mortgage rate that will ensure that you remain in your home may well be worth the price of a smaller loan.

Even if the banks lose this argument, and you wind up not needing the 20% “down payment,” having extra cash on hand can give you some leverage when negotiating with your lender.

Watch out for scam artists. If you decide to work with a loan modification specialist (who will represent you in dealing with your lender), watch out for scams. With the economy in the tank, all sorts of unscrupulous vipers are crawling out of the woodwork.

There are some things I like about the mortgage rescue plan. For instance, if you’re looking for a loan modification or want to refinance, the new mortgage bailout plan does make things simpler. Right now, there are about 57 different types of loan modifications. If what I’m hearing is correct, the new plan will bring in all the plans under one unified roof.

Plus, any lender who is receiving federal aid, like in the form of TARP payments from the U.S. Treasury Department,  is going to have to play ball. So if your lender wasn’t amenable to a refinancing or a loan restructuring, they could be singing a different tune after March 4.

Otherwise, the best thing to do until that date is contact your lender, get your financial documents in order and read up as much as possible on the housing rescue plan, especially the eligibility requirements.

For my part, I’ll follow up with more columns on how to cut the best deals once you qualify, and what steps to take once you start negotiating with your lender.

And they won’t be in cartoon format, either.

—Brian O’Connell contributed to this article.

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