Tuesday, September 1, 2009

How The Obama Home Loan Modification Program Works

Will Obama's new loan modification program make a significant impact on the housing market? If successful, millions of homeowners would be saved from foreclosure, preventing more foreclosures from flooding the banking and housing sectors. The following article from Blown Mortgage explains how the Obama Loan Modification Program will work.

The objectives of the Obama Loan Modifications program are rather ambitious, to help 7 million people (the number is also quoted as 9 million, depending who you ask) modify their loan in order to afford monthly mortgage payments. In fact the way the program is designed you can save money by modifying your loan. The government is seriously backing this program with their big guns, namely $75 billion of funding. As always with these programs there are technicalities to deal with but the gist is rather simple to understand.

The loan modification program provides incentives to banks and service providers to modify your loan to a more sustainable monthly payment if you qualify through the trial period. The three month trial period tests if you are on time with your payments.

If you are, you receive a bonus that goes towards paying the principal of your loan. After that, every year you pay your mortgage without being delinquent on any payment another bonus is paid towards your mortgage principal.

These bonuses are worth extra because they pay the actual cash you initially borrowed, on which you will not have to pay interest. Who qualifies? This is one of the prickly areas of the program. The Loan modification aid program was designed to be as open as possible. You don´t have to be behind in your payments to qualify, just struggling to meet the monthly payments with your current income.

However the issue gets a little complicated due to a clause that limits a lot of home owners that are struggling. You can only qualify if your mortgage represents more than 30% of your monthly income. If it is less you will not qualify. This clause is actually under revision due to the fact that most borrowers don´t only owe on their mortgage but on their car, their credit cards, etc… This causes some of the most desperate home owners that owe money from various lenders not to qualify for the help they need. There are two main groups that can qualify for loan modification.

Those that want a loan modification but that didn´t qualify because the value of their home dropped and those that are on the brink of foreclosure. Either of these groups can get a loan modification if they comply with the programs requirements.

This post has been republished from Blown-Mortgage, a mortgage news and analysis site.

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5 comments:

September 1, 2009 at 10:51 AM Katherine said...

Where do you go to get the modification?

September 2, 2009 at 6:31 AM Jennifer Troncone said...

Good morning, Katherine:
The idea of Obama backing the program is that your lender (who holds your mortgage) is SUPPOSED to help you. Here is an article from the LA Times about how this program is failing http://www.latimes.com/business/la-fi-loans5-2009aug05,0,858718.story. Your other option is to use an established loan modification company. They do this everyday. They know the laws and what modification programs are available. They work for you. Your lender has no personal motivation to take less money. If you'd like more information please contact me Jennifer jtroncone@TNFCG.com 856-537-7336 X17

September 2, 2009 at 7:05 AM Jay said...

Katherine,

I went online to get help with my modification. I went to www.MortgageRefinancing.com they gave me a couple of different options.

September 2, 2009 at 10:01 AM Steve said...

Doesn't it seem strange that THE ONLY ADVICE government officials give homeowners having mortgage payment difficulties is to tell them to go back to their lender, or through a HUD/FHA Counselor (and then back to the lender) to obtain Home Loan Modification help?

Let’s investigate this for just a moment.

During the home sales boom cycle the lenders became VERY GREEDY. As the opportunity for profits went up, the ethics/legality/morality of the loans they made went down. Later in this process loans were even being made to persons with no jobs and little, or no income at all!

Oh, and where was the government during the loan feeding frenzy? They turned their heads and DID NOTHING!

The most recent reports from borrowers who have completed Home Loan Modifications using these government recommended processes have been streaming in lately and are available for viewing all over the internet. VIRTUALLY ALL OF THESE REPORTS CONCLUDE THAT THE LENDER HAS GIVEN THE BORROWER VERY LITTLE, OR NO HELP AT ALL!!!

However, in the face of all of these results, government officials, supposed "gurus" and other so called "experts" continue to tell borrowers that government and direct lender assistance is the best help available! WONDER WHY? IT’S ALL ABOUT THE MONEY!

Using this same logic, the best way to prepare your income tax and maximize your deductions is to go to the IRS for help!! Why do so many people (even the government officials we are speaking about) hire help to prepare their taxes? SINCE WHEN HAS FREE HELP EVER BEEN THE BEST HELP AVAILABLE?

So, what does the AVERAGE OUTCOME of a Home Loan Modification THAT YOU ACTUALLY PAY FOR look like?

The firm I work for has averaged monthly mortgage payments reductions from between 20 - 50% for up to 5 years and the conversion of their existing loan to fixed interest rates in the 4 - 5% range for the full balance of the term of the mortgage! These averages come from over 200 completed resolutions!

Our firm is NOT ATTORNEY-BASED (unless paying higher and unnecessary additional fees is important to you), but does have substantial knowledge about specific legal issues. Our firm has reasonable performance guarantees, a 100% Money Back Guarantee and reasonable program fees (well under $2,500).

So, let’s do the math. Say you are a homeowner who has negative equity on an existing 6.75% fixed rate 30 year mortgage of $200k, that has a payment with interest of $1,298. Using the average results shown above, your new payment at only a 30% modification is $909 for up to 5 years and you will save well over $80,000 in interest over the life of the note!!

Ok, so you don’t plan on staying in the house much over 3 years - using these same numbers shown above, you will save over $14,000 in monthly payments alone during that time!! ARE THESE AVERAGE MODIFICATION RESULTS WORTH THE FEES?

The answer is simple folks - THE LENDER AND THE GOVERNMENT THAT REPRESENTS THEM DOESN’T WANT TO GIVE THE MONEY BACK! EXPERT NEGOTIATION, HOWEVER, WORKS WONDERS!!

November 18, 2009 at 10:47 AM Pam said...

So Steve, who do you work for and how does someone get the help you indicate? I'm in desperate need.

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