Are you one of the millions of homeowners who is waiting and hoping that the federal government will freeze the rate on your subprime mortgage? Be sure you’re not holding your breath, because taking advantage of this government program will not be easy. Just calculating whether you qualify for the program will take some time and effort.

To update the uninformed, the White House rolled out a voluntary plan on December 6th that subprime lenders will be using to determine who may get the interest rate on their subprime mortgages frozen for the next five years.

The purpose of the plan is to prevent massive foreclosures on mortgages that are held by homeowners who have a less than stellar credit history. Most subprime mortgages are adjustable rate loans and most also will adjust within the next two years.

If you are unable to afford the new monthly payments once your rate adjusts, this program may work for you. May is the key word. Remember that this is a government program, so expect considerable red tape just to determine if you qualify.

Test number one is your FICO, or credit, score now and when you signed on the dotted line to get your mortgage. If your FICO score was over 660 when you applied for your loan, you can kiss this government giveaway goodbye because your credit is too good.

If your score was under 660 when you took out your loan, the next determinant is what is your score now? If it has not increased more than 10%, you are still okay. But if your score is up over 10%, sayonara sailor.

For example, suppose your FICO score was 650 when you took out your mortgage. That is less than the maximum, 660, allowed, so you pass the first part of the test. Now suppose it is 700 currently, which is an increase of 7.69%. You still fall within the guidelines because you did not raise your score by more than 10%.

But, suppose it increased to 716, which is a raise of 10.15%. That would normally disqualify you unless you did something to lower your score, like skipping a payment on a credit card. Something like that would probably reduce your score back within the desired range.

Now for test number 2. You need to be current on your mortgage payments, which means, for the sake of this program, you are not more than 30 days behind on your mortgage now and have not been more than 60 days behind during the previous year.

Test number 3: Your equity in your home cannot exceed 3%. That means that the amount that you owe on your home and the home’s value must be pretty close to equal. If your home is valued at $300,000 and your mortgage balance is $250,000, you are disqualified because the ratio of your mortgage to the value of your home is about 83%, which is too low. That ratio, which is called your Loan-to-Value (LTV), must be no lower than 97%.

The final two tests are much simpler. Number 4: You must occupy the home as your principal residence. If it is an investment property or a vacation home, then you are disqualified.

Test number 5: Your monthly payment must be increasing by more than 10%.

If you pass the test, congratulations. You are eligible for the program, but if you flunk the test, do not give up. Contact your lender to see if something else can be worked out because it doesn’t cost anything to ask.

Bob Roscoe, Mortgage Marketing Associates, Minneapolis, Minnesota

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Bob Roscoe, Mortgage Marketing Associates, Minneapolis, Minnesota

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