The Obama Loan Modification Plan

The American housing market has been in shambles for years, and people can’t help but feel a little hopeless about whether or not they can make their mortgage payments or their home value will ever get back break-even, let alone seeing some equity. But there is hope in the form of a new federal loan modification plan. You should consult with a real estate attorney.

In the spring of 2009, the Obama Administration put fourth a bold initiative to stabilize the housing market. The plan, Making Home Affordable, is being injected with $75 billion to rework at-risk loans - as many as nine million Americans may qualify to reduce their monthly mortgage payments to more affordable levels. But, who can take part in the program? Here are the basic criteria for people who qualify for the Obama loan modification plan:

• The mortgage must have originated before January 1, 2009.
• The owner must occupy the home.
•   The unpaid balance must be equal to or less than $729,750 for a single-family home.  If your residence is a multi-unit property, you can still be eligible for a loan modification under the Obama plan as long as it is no more than a four-unit property with a value equal to or less than $1,403,400.
• The owner is having trouble keeping up with mortgage payments due to financial hardship. Maybe your mortgage payments increased due to the balloon loan you signed up for a few years earlier. Or, maybe your income shrunk or you suffered a medical hardship that increased your financial burden.
• The owner will need to show that they will soon be unable to make their payments.
• An affidavit of financial hardship will need to be submitted.
• The monthly mortgage payment must also be more than 31 percent of your gross monthly income.
• If you are in the midst of being foreclosed on, the process will stop while you’re being considered for the loan modification program or for any other alternative foreclosure prevention option.

If you qualify for the program, here’s what will happen:

The lender will reduce your interest rate on your loan to no less than two percent. The goal is to make sure the monthly payments are less than 38 percent of your monthly income. Then, the Treasury will match further reductions, dollar-for-dollar, with your lender, to bring the monthly payments down further, to 31 percent of your monthly income.

Attractive Incentives

If you keep making your payments on time after the loan modification starts, the government will pay up to $1,000 each year in the first five years toward reducing the principal on your mortgage.

After five years, the interest rate on the loan will start to increase by no more than 1 percent a year, and can’t go higher than the market rate on the day your loan was modified.

If you are interested in a loan modification under the Making Home Affordable program, you must complete a three-month trial period at the modified rate. Consult a loan modification attorney. If you make all of your payments on time in that three-month period, you can keep the lower rate that will be fixed for five years. Also, there are no fees for anyone who applies for the Obama loan modification program. If it sounds like something that will get your financial ducks in order, what do you have to lose?