home loan modification

The loan modification program came into force on March 4, 2009. It is a great blessing to home owners. The loan modification program is on a trial period for the moment. After the trial period the program will be absorbed into the “Home Affordable Modification Program”. The main intention of the program is to reduce the number of foreclosures as much as possible. Another aim is to revive the economy from current downturn by pumping more funds into the economy. President Obama has announced $75 billion for immediate modification and refinancing of home mortgages.

Under the loan modification program some guidelines are issued. Some of the features of the guidelines are given here. The basic intention of the program is to reduce the monthly mortgage payment of the borrower. The lending institution has to bring down the monthly payments to 38% of the front-end-debt to income ratio of the borrower, or below that level. The ultimate aim of the loan modification program is to bring down the front-end-debt to income ratio to 31%. Any amount reduced by the lender below 38% will be matched by the Federal Government until the ratio reaches 31%. In other words, up to 3.5% below 38% borne by the lender, the government will also pays an equal amount. The service providers will be paid $1000 for every modification on these lines brought about by them. This will continue to be paid every year for three years if the borrower remains in the program during that period. This is called the Servicer Incentive Payment.

Borrowers are also eligible for an annual payment of $1000 for five years provided they pay the dues on time. This payment, called the Pay-for-Performance Success will be in force for five years. This will go to reduce the principal amount owed by the borrower. Under the loan modification program, the lender is eligible for a one time payment of $1500 and the service provider $500 if the borrower is current on mortgage payment and he/she is granted the facility mentioned above. The service provider is required to enter into an agreement with Treasury’s financial agent before participating in the program. Otherwise, no payment will be made to the lender, borrower or the service provider under the loan modification program.

For eligibility to be included in the loan modification program certain conditions are laid down. The mortgage to be modified must have begun before January 1, 2009. The property must be the primary residence of the borrower and it should be verified by proper documents. The home must be occupied by a single family. The service providers must consider all eligible loans for loan modification program. Even if the borrower is on litigation with the lender about the loan, still the borrower is eligible for consideration for loan modification program. The borrower will not forfeit any of his rights under dispute. During the consideration for loan modification program no foreclosure proceedings are permitted. Likewise, all foreclosure actions will be suspended until after any move for alternate foreclosure has failed.