Relief Starts to Trickle to Troubled Homeowners

Starting December 15, Fannie Mae and Freddie Mac, the huge, government-controlled mortgage underwriters, will sponsor various kinds of relief to homeowners at risk of foreclosure. Here are some of the requirements eligible borrowers must meet:

Be at least three months behind on their mortgage payments
Owe the bank at least 90 percent of what the home is worth
Live in the home as a primary residence
Not be in bankruptcy
Be able to prove that they're not just trying to skip out on the loan

For those who qualify, banks could agree to lower the interest rate or extend the life of the loan in order to lower monthly payments and make the mortgage more affordable. But many troubled borrowers will still fall outside the new safety net, for a variety of reasons. Here's who is most likely to benefit:

Homeowners with decent income.

A new federal standard calls for the typical monthly mortgage payment to be no more than 38 percent of household income. Which means you have to have some income to start with.

At IndyMac, the California bank the FDIC took over this summer, an aggressive loan workout program has helped some struggling borrowers lower their monthly payment by an average of about $380. That might make a difference for working families just starting to slip under water or borrowers who could afford the payments under a low, introductory rate but are now struggling under a much higher reset rate. But it probably won't help people who have been laid off or whose income has fallen significantly. And so far, the feds are being careful not to forgive portions of a loan outright.

Borrowers who badger their bank. Government regulators say that one of the barriers to helping some of the most troubled homeowners is finding them—mainly because they don't seek help where it's available. So people who think they might qualify for a mortgage modification shouldn't wait for their bank to contact them: They should beat a path to the bank and demand help. And if it's not forthcoming right away, ask again.

People with their paperwork in order. One of the reasons it's taken so long to get a program in place to help homeowners is the potential for fraud and abuse. Regulators are trying to be careful that flippers, speculators, and people who can pay their mortgage but just want to wriggle out of their loans don't game the system. So anybody who shows up asking for a workout is likely to undergo a white-glove inspection. You'll have to prove that you work and live where you say you do, you're not juggling a portfolio of properties, and you're really in financial distress. The days of undocumented "no-doc" loans are long gone.

Borrowers with a loan held by the issuing bank. Unfortunately, this cuts out a lot of homeowners—and there's practically nothing they can do about it. Over recent years, the majority of mortgages have not been held by the bank that made the initial loan. Instead, they've been transmogrified into complex securities and sold to investors all over the world—a big contributor to the overall housing bust.