President Obama's Loan Modification Plan

Here is a brief overview of the housing plan that President Obama has put into place. The plan is to rescue the struggling housing market by modifying distressed mortgages, Mortage Loan Modifications, which will keep struggling home owners in their homes to help establish a floor to the recent declining real estate values. The President has set aside $75 BILLION to fund this plan. I will try to break down some key pieces of this plan.

The plan is to focus on mortgage payments, rather than mortgage balances. By lowering rates and extending terms, the home owner’s payment will come down. Foreclosures happen mainly because home owners cannot afford to make their payment, not because they owe more than what their home is worth.

Mortgage lenders/servicers are to bring the monthly payment to no more than 38% of what the borrower’s gross monthly income would be (DTI). The government would then help reduce the payment even further down to no more than 31% (DTI). Once again, by lowering your rate (as low as 2%) and/or extending your term (as high as 4o yrs), the payment should drop to this level. If further action is required to reduce payment to fit these ratios, servicers would forebear loan principal at no interest. However, loan servicers are not required to reduce loan principal. These modified payments are to remain in place for 5 years.

There are cash incentivizes available for both loan servicers and borrowers if the Mortgage Loan Modification is completed successfully. Servicers will get $1,000 for each Mortgage Loan Modification and can make an additional $1,000/yr for up to 3 years if the borrower continues to make their payments on time. The borrowers can get up to $1,000/yr knocked off their loan principal loan balance for up to 5 years if they continue to make their modified payment on time.
The plan is made to help primary home owners, not investors. Only owner occupied, primary residences, with mortgage balances up to $729,750 are eligible. A serious financial hardship also needs to be present. These financial hardships will be verified by the borrower completing an affidavit of financial hardship or hardship letter as well as supplying income documents. Only loans originated before January 1, 2009 are eligible.

Now that the plan has been announced, millions of borrowers are going to start calling their lenders to see whether or not they are eligible for Mortgage Loan Modification. The mortgage lenders and servicers may not have the capacity to handle these inquiries. Even if they can keep up, the file/document organization and proper communication by these loss mitigation departments may also suffer from the high volume. Therefore, the Mortgage Loan Modification process could be slow, agonizing pains in the you know what. If you can handle it and have plenty of time and patience, give it a shot. However, the assistance of a Loan Modification Service may be worth looking into. Also, you may not qualify for the Obama plan, so having legal representation will help you explore ALL options that are available.