With an initial funding of $75 billion, the US government has jumped feet first into the effort to modify American homeowner’s mortgages to prevent foreclosures in a plan known as, “The Homeowner Affordability and Stability Plan”. It has the strong support of President Obama and often is referred to as Obama's Home Loan Modification plan. This initiative has two basic elements.
One part is addressed to those homeowners who cannot take advantage of home mortgage refinance because of the depreciation in the value of their home due to the “housing bust”. In these cases the present mortgage loan amount is more than 80% of the market value of the home due to the home depreciating in value.
The other part of Obama's Loan Modification Plan is tailored to reduce the monthly mortgage payments. This is targeted to those homeowners who are on the verge of foreclosure and want to modify their mortgage in order to able to continue to make their payments.
Why should I Look Into Loan Modification?
Some of the reasons people seek loan modification are as follows
- As a consequence of the economic recession, many businesses have incurred significant losses and many employees have either lost their jobs or have to face huge cuts in the salary. The home owner who once could afford a certain mortgage can no longer afford the monthly payments and needs to lower the monthly payment through Obama's Loan Modification Program.
- If your interest rates are too high, you need to seek loan modification to reduce the rate of interest.
- If you have been paying on your mortgage for a number of years, you don’t want to lose it. Loan modification can help by reducing your monthly payments.
- Through Obama's Loan Modification the homeowner can avert the risk of foreclosure of the home.
Making Your Home Mortgage Affordable in Today’s Environment
Having a home mortgage that you can afford to pay in today’s economy is not an easy task. The monthly payments that were once affordable are becoming a financial burden for many homeowners. For those homeowners who now find themselves unable to afford the monthly payments can find relief in Obama's Mortgage Loan Modification Program which is designed to reduce monthly payments until they fit into your budget.
President Obama’s loan modification program comes when it's most needed. The purpose of the home loan modification program is to reduce the monthly payment of your mortgage, lower the rate of interest and make the monthly payment affordable in such a way that it does not exceed 31% of the gross income of the debtor.
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Motivating both Homeowners and Mortgage Lenders
Mortgage lenders, because of the current recession, are hesitant in approving traditional mortgage refinance loans. Keeping this in mind, the Obama's home loan modification program is providing cash incentives to the lenders and loan servicers. It gives them an incentive to work with you.
For each home loan modification application that is eligible and qualifies for the program, the lenders and providers get $1,000 as an upfront fee. If the borrower remains current in their monthly payments, the lenders and service providers will get $1,000 per year for up to 3 years.
The mortgage service providers who represent the lenders also get an incentive of $500 if they help the lender focus on the mortgage holders who try to be consistent and on time in their monthly payments. The mortgage lender will get $1,500 if the borrower modifies the loan prior to falling behind on the monthly payments.
The homeowners who are consistent in monthly payments on Obama's Mortgage Loan Modification are eligible to take advantage of a reduction of $1000 per year in the principal amount of the loan for up to 5years.
Guidelines for the Obama Home Affordability Modification Plan:
Some of the guidelines for Obama’s Loan Modification Program are as follows
- The applicant should submit the latest tax returns, two of the most recent pay stubs and an "affidavit of financial hardship" which they can write themselves, explaining the financial hardships they have faced in recent months.
- The monthly payment is adjusted so it cannot exceed 31% of the current gross monthly income of the applicant and, because of this, the applicable rate of interest can go as low as 2%
- The home should neither be condemned nor vacant
- The home for which the Obama's Loan Modification Plan is being sought should be a single family residence and not for commercial purposes
- The home should not be owned by the investor but be the primary resident of the homeowner
- The duration for repaying the loan can be prolonged to a maximum of 40 years
- The mortgage balance cannot be more than $729,750
- Obama’s Loan Modification current expires in December 31, 2012
- The first mortgage must have originated on or prior to January 1, 2009
- Homeowners who are current in monthly payments can get an annual reduction of $1,000 in the principal amount for a period of 5 years