Recession Rescue: Where to Go for Help

Since January, we've heard about programs to help the unemployed, prevent foreclosures and stimulate the economy. We know trillions of taxpayer dollars are being spent to avoid a second Great Depression, yet many Americans have little idea where to turn for help as individuals.

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In many cases, individuals are going to need to take action on their own. They can't wait for somebody to come knocking on their door.

With that in mind, here's a summary of a few of the major initiatives in place to help improve the financial lot of individual American workers, retirees and homeowners and details on where to turn for help.

Foreclosure prevention: President Obama's Treasury secretary, Timothy Geithner, last week announced the details of the Making Homes Affordable program. This includes a mortgage refinancing initiative for homeowners who owe more than 80 percent of what their homes are worth now. The program's second part is an effort to modify existing home loans to lower payments and help homeowners avoid foreclosure.

The refinancing program is aimed at homeowners who have a solid payment history on an existing mortgage on a primary residence, but have been unable to refinance into a lower-rate loan or from a current adjustable-rate mortgage into a fixed-rate one due to the drop in real estate values.

This refinancing opportunity is available only to loans owned by Fannie Mae or Freddie Mac, the government-sponsored companies that buy up many of the mortgage loans made in this country. The Treasury Department estimates 4 million to 5 million homeowners will qualify.

Chances are that many homeowners have no idea Fannie Mae or Freddie Mac owns their mortgages. Even if you still receive account statements from the bank that originally issued your mortgage, it could be owned now by Fannie or Freddie. For that reason, you should check with the company to which you send your monthly payments.

You can also check directly with Fannie and Freddie:

Fannie Mae: 800-732-6643 or www.fanniemae.com/homeaffordable

Freddie Mac: 800-373-3343 or www.freddiemac.com/avoidforeclosure

To apply for a Home Affordable Refinance loan, homeowners should contact their mortgage servicer directly. This refinancing program is in place until June 2010.

The loan modification initiative seeks to lower monthly mortgage payments for struggling homeowners by lowering the interest rate on existing loans to as low as 2 percent. Also, in some cases, a portion of the loan balance could be reduced.

As an incentive to borrowers, the Treasury Department will reduce loan balances for each month they make on-time payments. Over five years, those reductions could cut up to $5,000 on the amount owed.

The loan modification effort will be in place until the end of 2012.

The Treasury Department is warning homeowners interested in either home affordability initiative to avoid outfits that offer help applying in exchange for a fee. Instead, the department is encouraging homeowners to contact a HUD-approved housing counseling agency.

The best source of information for either Making Home Affordable program is a new Treasury Department Web site: www.financialstability.gov.

There's an online self-assessment tool to help you determine whether you are eligible for either a loan modification or the refinancing program.

Help for first-time home buyers: Another provision within the economic stimulus package signed by President Obama last month provides a major boost to first-time buyers.

This boost comes in the form of a tax credit worth up to $8,000 for homes purchased this year by buyers who did not own another home within the previous three years.

This $8,000 credit is distinct from last year's $7,500 credit for first-time buyers that had to be repaid over 15 years and acted essentially as an interest-free loan.

This year's $8,000 credit does not need to be repaid. However, this credit is offered only for 2009 purchases. Eligible buyers must file a tax return to claim the credit.

Normally, the credit would not be received until filing the 2009 tax return next spring. However, last month the IRS instituted a special provision allowing first-time home buyers who purchase a home before Dec. 1 to claim the credit this year on the 2008 return due April 15.

If you expect to buy a home after April 15 of this year, you can avoid waiting until next year to claim the credit by either filing an amended 2008 return later in the year or filing for an extension of your filing deadline by April 15.

For information on this credit, visit the IRS Web site, www.irs.gov, and look for Form 5405, which must be filed to secure this credit.

Health insurance for laid-off workers: Another small part of the 407-page economic stimulus legislation is a provision that makes health insurance much more affordable for laid-off workers.

This provision provides a federal government subsidy to allow laid-off workers to purchase Cobra health insurance coverage through their former employers at a cost 65 percent less than what they otherwise would have paid.

For many years, employees who left a company had the option of continuing their employer's health insurance coverage under Cobra (Consolidated Budget Reconciliation Act of 1985). But that coverage came at a high cost as the employee was required to pay the full premium as opposed to just a portion, as when they were working for the company.

For a family plan, that full premium can easily hit $1,400 a month.

Under the stimulus package, workers who leave their jobs involuntarily between Sept. 1, 2008, and Dec. 31, 2009, can elect Cobra coverage and pay 35 percent of the premium for up to nine months.

In the example above, the $1,400 monthly premium would be reduced to $490. The cost difference is being picked up by the federal government in the form of a subsidy to the employers who provide the group coverage.

Workers who were laid off before the stimulus package was signed into law and declined coverage the first time around are eligible again to go back and re-elect Cobra coverage at that 35 percent rate.

Laid-off workers eligible for health insurance coverage from another source, such as Medicare or a spouse's plan, do not qualify for this reduced Cobra coverage.

For information on the Cobra subsidy, visit the U.S. Department of Labor Web site,

www.dol.gov/cobra.html. The IRS web site, www.irs.gov, also provides information.

Employers are supposed to reach out and provide notice of eligibility for this reduced-cost Cobra coverage. They have 60 days from Feb. 17 to contact former employees, and those eligible will have 60 days to choose this coverage.

If you don't hear anything soon, contact your former employer yourself.

If you were laid off from a job, this is one government initiative you should not pass up. Even with the 65 percent reduction, the monthly may seem too expensive while out of work. But health insurance coverage is critical to prevent a bad financial situation from turning into a catastrophe.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

David McPherson is founder and principal of Four Ponds Financial Planning in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at david@fourpondsfinancial.com.

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