Obama's Loan Modification Program

You've probably heard about President Barack Obama's plan to rescue the housing market. He believes that restructuring distressed mortgages will help to keep struggling home owners in their homes. He also believes that this will help slow or stop the decline in housing prices. To this point $75 billion has been allocated toward modifying distressed loans and the Administration claims that it can help up to 4 million homeowners. Unfortunately, over half of those loans that have been modified have re-defaulted within six months.

Can Obama's plan help you? Well, let's look at it's main components:

First, the Obama administrations loan modification plan focuses on payments, not prices. They assume that home owners will want to stay in their homes as long as they can make the monthly payment regardless of the value of their home. This may or may not be the case. Evidence has shown that some homeowners will walk away from their homes even if they could make the payment only because the value of their home has fallen far below what it was once worth.

Second, Obama's loan modifcation program requires loan servicers to lower the borrower's monthly payments to no more than 38 percent of the borrower's gross monthly income. The federal government would then subsidize a portion of the payment so that the borrower would only be paying 31 percent of their gross monthly income. Obama's plan does not require loan servicers to reduce the pricipal amount of the loan. The servicer can reduce the interest rate to as low as 2 percent, extend the loan to a 40 year amortization, or forbear a part of the pricipal at no interest. So, if these terms would help you stay in your homne then you should take a serious look at the Obama Loan Modification Program.

Why would loan servicers want to participate in this program? Well, for one, they will get $1000 for every modification plus an additional $1000 each year for up to three years if the borrower continues to make the payments on the loan. The borrower too can get up to $1000 knocked off of their loan principal each year for up to five years if they make their payment s on time.

Of course, in the Obama Loan Modification Program only owner-occupied primary residences will be considered and only those with loan balances less than $729,750. Applicants will have to sign an affidavit of financial hardship and verify their income and only loans originated on or before January 1, 2009 will be eligible for the program.

So, does the Obama Loan Modification Program sound like it could help you? If so, then give your lender or loan servicer and call and see if you qualify.