Many are wondering if this law is a little too late. What exactly will it do? Essentially the law allows those who qualify to abandon their existing mortgage but substitute the debt with a 30-year fixed rate loan for a maximum of 90 percent of the home's current value. The Federal Housing Association or FHA will step in and back the loan amounts up to $300 billion worth of bad mortgages. Still the final decision remains with the banks to underwrite the loans because the bottom line is the banks are losing money either way. They take the chance that the existing mortgage will be foreclosed upon, resulting in them owning the property or the other loss is the new mortgage not being as large the existing loan due to housing values dropping substantially over the years. It is a lose-lose situation for the bank but many of them will see this time period as a chance for their portfolios to recover.

This does not mean that every Tom, Dick or Harry and their cousins can qualify or be eligible for the program. There are strict guidelines that must be adhered to. The borrower must be spending more than 31 percent of their housing payment as of March 1, 2008. The existing but distressed loan needs to have been written no later than January 1, 2008, and the borrower must reside in the property. As with any loans, the borrower's income must be documented. Even though this country is facing a lot of economic problems and it is certain many troubled homeowners will be in the bandwagon, this program does not start until October 1st of this year. It will run until 2011. A word of warning however is that FHA, already a burdened government agency, may not be up to full running capacity until after New Year's, to handle this new legislation.

It is also important to consider the fact that your credit will be a deciding factor in this scenario. One option will be to consult your local bank to discuss if this program will even assist your needs or be a benefit to solving a huge problem. It is important that once you realize you are in trouble making mortgage payments, to discuss the matter with the existing mortgage provider. There may be other options and solutions. Ask the customer service representative to put you in touch with the Workout Department.

You must understand, there is no guarantee in life. Try not to get your expectations and emotions involved. This is not entirely an easy thing to do when you're talking about your home but understand that communication with the mortgage-servicing provider is crucial. Also know that many financial institutions limit the amount of loans guaranteed by the government. Many hesitate dealing with FHA, frankly, because of the paperwork and strict guidelines. Many banks may not agree with this program and specifically lend away from it.

What is most important when thinking about applying for this program is to stay in touch with your existing mortgage company and continue to may payments as best as you can. While many will see this program as incentive to NOT make payments, do not think for one moment this is the best way to go about solving the issue. It is important to NOT allow your situation to worsen any further beyond the point of foreclosure. The bottom line here is while the bank does not want to foreclose for their own reasons of maintaining a healthy portfolio; they will still foreclose upon a deadbeat for non-payment. If you are in that much trouble, it may be wise to seek credit counseling at your local non-profit agency that specializes in debt advice. Do not pay someone for this service. Also you can call the toll-free hot line of the Hope Now Alliance. This industry group is trying to coordinate a response to the mortgage crisis. Their phone number is 1-888-995-HOPE, 24 hours a day and provides mortgage counseling in multiple languages.

While on the subject, it is important to budget monthly income wisely. Keep proper track of where the money is going. It may be surprising, the small things you can do to stop bad cash flow behaviors such as eating out for lunch or buying coffee in the afternoon. The small stuff adds up quickly. By keeping track of what you make and how it goes out, you can also make a plan for repayment and future expenses. Also you will be better able to answer financial questions when applying for this program. Still there is this worry as discussed above that the banks will not accept this program but the only thing left is to stand up and voice your opinion if this should happen. The more political pressure and negative press toward the banks may actually work to get their cooperation. This is still a wait and see situation really.

Finally seek out other options such as selling your home. It may seem a daunting task at this time but you may get lucky especially during the summer to fall transition period. Many are moving for school and work. Think about the rentals in your area, buying may be a better option for many so do not hesitate to consider this idea and consult a realtor in your area. Still it is important to consider that should the new program work for you and you decide to sell your property in the future or in the next five years, you will agree to share 50 percent of any profits from the sale with the government. Also retention of equity changes even with refinancing but this program zeros the home's equity at year one with a sale.

The percentage will rise by 10 percent each year but capping off at 50 percent in year five and beyond. When you look at it from a financial approach, it makes perfect sense because the lack of equity makes up for the new loan being capped at 90 percent of the current market value. By going ahead with the program, automatically allows the homeowner 10 percent equity. It doesn't seem fair that they can't do anything with it but the point of the matter is to get them on the road to saving their home, not perceiving it as a valuable static investment.

What is most important here is to think about all options before making a final decision that may have impact for many years because after all, your home is your castle.