Making Home Affordable Plan Law and Legal Definition

Making Home Affordable or the MHA Plan is put in place by US Treasury to stabilize the housing market by encouraging lower mortgage rates and making it easier for millions to refinance and avoid foreclosure. Lenders are increasingly moving towards foreclosure and home prices are being driven lower. It has been found that foreclosure on a home has reduced the prices of homes in nearby area. In order to improve the situation, the Obama Administration on February 18, 2009 announced the MHA program to help struggling homeowners stay in their homes.

On March 4, 2009 detailed program guidelines were published by the Administration. The MHA program aims to support a recovery in the housing market and ensure that workers can continue paying off their mortgages. Servicers covering more than 75 percent of loans in the country have begun modifications and refinancing under the MHA program.

The MHA Plan can provide assistance to as many as 7-9 million homeowners who make sincere effort to make their mortgage payments timely. MHA encourages borrowers to stay current in their mortgage payments. It provides incentives to qualifying lenders and borrowers. The incentives will reduce the principal balance on the loan every month when timely payment is made. The MHA Plan has two main programs:

  • Home Affordable Refinance Program; and
  • Home Affordable Modification Program.

The key feature of MHA is the incentives it provides to both lenders and borrowers. The Plan helps lenders and servicers reduce homeowner's monthly mortgage amount. The lenders must first reduce mortgage payments to 38% of a borrower's monthly income. Then the Treasury matches the lender's additional reductions until the mortgage payment reaches 31% of the borrower's monthly income. The borrowers who stay current on their monthly mortgages receive a 'Pay-for-Performance Success Payment', which gives the borrower $ 1,000 each year for up to 5 years. This money helps to reduce the principal amount. Under the modification program, payments will be based on the total number of modified loans that successfully complete the modification trial period. The successful modification will be eligible for a Home Price Decline Protection or HPDP incentive, up to a cap for HPDP incentives of $ 10 billion. If the trial modification remains successful, 1/24th of the HPDP incentive will accrue to the lender each month for up to 24 months. At the end of the first and second year of the modification, HPDP incentive payments will be made.