For homeowners looking to make sense of the Obama administrations new Loan Modification Programs, the program can be basically broken down into two sections. One part is for homeowners facing foreclosure due to missed payments and are at risk of defaulting on their loans. For them, the government will give the lender financial incentives to make a loan modification to the existing mortgage (known as a mortgage loan modification), reducing the monthly payments so as homeowner can stay current on the loan and keep their home.
The other part is for homeowners who are keeping up with their mortgage payments but cannot refinance or get a loan modification with their lender because the value of their home has fallen below the amount of the mortgage.
For these "under water" homeowners, the rescue plan will help refinance the mortgage to lower the monthly payments. There are several restrictions, however, so relatively few homeowners in this category will actually qualify. That is the simple explanation. But both plans have a lot of moving parts, so here is what you need to know if you want to take advantage of them.
Mortgage Loan Modification
If you are facing foreclosure and want to do a loan modification to keep your home, you must meet the following criteria:
• Have secured your mortgage before Jan. 1, 2009
• Have a primary mortgage of less than $729,500
• You must live on the property
• Must fully document income with tax returns and pay stubs
• Sign a financial hardship statement
• Go for counseling if your total household debt totals more than 55 percent of income.
If you meet all those qualifications, your lender will then determine how much to lower your monthly payment so it is about 31% of your gross monthly income. The interest rate could be as low as 2%.
Homeowners pay no fees for the mortgage loan modification. However, homeowners could face a balloon payment at the end if your lender reduced your monthly principal payment during the loan modification. So if your lender reduced your total payments $20,000, you could owe that amount when paid off your loan, refinanced or sold your house.
But there is some financial benefit for the homeowner in the plan. For every month a homeowner makes a payment on time, the Treasury will pay an incentive that reduces the principal balance on a loan. Over five years the total principal reduction could add up to $5,000.
There is also a trial period to test the modify mortgage.
Loan Modification Programs get paid by Fannie (Mae) or Freddie (Mac) after three months If the homeowner pays the mortgage on time. Providers of Loan Modification Programs get $1,000 from the government each year for the next three years. If the mortgage is not paid on time in those three months, the deal is over."
And the new loan rate can go up after 5 years. It is only a low in the beginning to help the homeowner dig them out. The plan is in effect until the end of 2012 and can only be used once.
Refinancing Option
If your current on your mortgage but your bank would not let you refinance or get a loan modification because your mortgage is "under water," here is how you qualify for the government refinancing program:
• Your home must be the primary residence
• Your loan must be owned by Fannie Mae or Freddie Mac
• You must have sufficient income to support the new mortgage debt
• You cannot take cash out of the new loan to pay other debt
There is another big restriction, however, that will make many homeowners ineligible for the program: the value of your house cannot have fallen much below the amount of the mortgage.
"The ceiling of eligibility is 105 percent of current market value of the property-so that is not going to help homeowners who have suffered home price declines," says Greg McBride, senior financial analyst at Bankrate.com. "Say you bought a house for $320,000. Your mortgage balance is now $300,000 but the house is now worth only $225,000. You are stuck, you cannot refinance, even if you made your payments on time."
McBride says the loan to value ceiling should be raised. "It should be something in the neighborhood of 150 percent," says McBride. It is too low to help people in Florida, California, Nevada and Arizona. Those markets are at the epicenter of the foreclosure crisis."
Still, if you do qualify, here is what you get:
• Your mortgage will be refinanced to 30 or 15 years with a fixed interest rate.
• The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender
• Interest payments but be reduced but not principal
Plenty of Critics
The Obama Loan Modification Programs says it will help as many as 4 million struggling borrowers accomplish a mortgage loan modification and some 5 million refinance their current loans. But industry experts remain skeptical.
Finally the Obama administration has gotten involved in the refinancing crisis by expanding the guidelines needed for a mortgage loan modification. Without these changes it is questionable if the private lending market would be very effective at all in offering wide spread loan modification. View our recommendation site to modify loan http://www.refinanceitt.com.
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