Loan modification: Obama foreclosure prevention program

Now, there is a new federal program by the new President Barak Obama in March 2009 and Congress is working on that to make it a law. This $75 billion loan modification plan provides incentives to borrowers and loan servicers and investors to spur mortgage modifications. The government also subsidizes interest rate reductions to get borrowers to affordable monthly payments. It focuses on people who are behind in their payments or are at risk of default. To those borrowers who are default at mortgage payments, it helps them by loan modification so their payments are no more than 31% of monthly gross income. To those borrowers who haven't missed a payment can refinance into lower-cost loans even if they have little or no equity. It is effective until the end of 2012, but your loan can only be modified once.

To qualify for this program, you must:

1.       have made your mortgage before Jan. 1, 2009;

2.       have a primary mortgage of less than $729,500;
live in the property;

3.       fully document your income by providing tax returns and pay stubs;

4.       receive counseling if your total household debt - including auto loans, credit cards and
alimony – is more than 55% of your income;

5.       and  you must sign a hardship.

How this program works?

           

            Your original lender or servicer if your loan was sold to an investor must reduce interest rates so that your total mortgage payments are not more than 38% of your monthly income. The government will then subsidize servicer or lender dollar-for-dollar to lower that ratio to 31% - but the interest rate can't go below 2%. (Note: a servicer is the one that is responsible, on behalf of mortgage note holder, to collect mortgage payments, mortgage insurance, property taxes, to deal with borrowers when they are behind payments, or to modify your loan, or to start foreclosure process if needed. A service can be your original lender.)

 

            The new interest rate would then remain in place for five years, after which it will increase by 1 percentage point a year until it reaches either the original rate or the prevailing mortgage rate at the time of the modification, whichever is lower.  If rate reductions aren't enough to get payments to 31% of income, a lender can extend the term up to 40 years, or shift part of the principal to the end of the loan at no

interest. Servicer or your lender also has the option of reducing the loan's balance.

 

            Servicer will receive $1,000 for each loan modified, as well as additional annual bonuses if you keep up with payments. You can receive up to $1,000 a year in principal reduction for up to 5 years if you keep up your new monthly payments.

 

            In addition, the program offers some money to your second mortgage holder to eliminate the second loan and even third loan if you have one to reduce your overall loan amount. It gives incentive to the junior mortgage holder not to hold your loan modification hostage as it usually does. Servicer that gets your second-mortgage holder to participate will receive an additional $250.

 

            The program is voluntary. If your lender or mortgage note holder believes that if it can recover more money by foreclosing your home, it will not approve your loan modification.

 

Important links for the Foreclosure Help:

1. Obama foreclosure prevention program: Eligibility for loan modification   Refinancing    Housing Counseling (HUD approved)

2. Foreclousre Assistance Program by State

3. HUD Approved Counseling Agencies throughout the country: for mortgage default, credit, and foreclosure counseling.

4. Simple Mortgage Calculator. Loan Modification Calculator.

5.. Reverse Mortgage Calculator,    HUD approved HECM Conselors,    HUD approved HECM lenders

6. Real Estate Forms: Non-Exclusive Listing,  Purchase and Sales Agreement, Bill of Sale, all forms in 50 states

 

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