Home Loan Modifications

March 6th, 2009

In this difficult economic climate, many people with home mortgages have a new reason to celebrate. This is a tight recession, and many people are struggling just to get by. The President’s new initiative for home loan modifications could get their monthly responsibilities to a manageable level.

The Making Home Affordable plan was introduced in February and put into effect on March 4, 2009. There are two parts to the initiative. First, it will relax refinancing requirements so that as many as 5 million homeowners will now have that option open to them. Second, it will let homeowners work with their lender to modify their loans.

Foreclosure is becoming a reality for more and more Americans, and thousands of others are finding it difficult to make monthly payments. Employees are increasingly being laid off and taking forced wage reductions, and so their monthly payments have ballooned to a very large percentage of their total income. They are often unable to pay that large percentage each month. The Making Home Affordable act will let qualifying homeowners decrease their monthly payments to 31% of their gross monthly income.

The modified monthly payment is held in place for at least five years, after which time it can rise back to the conforming loan rate during the time the loan was modified. An important part of this plan is that a homeowner does not have to be delinquent on payments to take advantage of loan modification.

Modified loan holders also receive extra bonuses from the government through this initiation. Each on-time payment after the modification will result in a bonus payment that pays down the loan principal. If a homeowner modifies his loan and then makes regular, on-time payments for the next five years, he is eligible to receive $1,000 a year through the Making Home Affordable plan. Likewise, lenders participating in the home loan modification plan also get incentive payments.

Not just anyone can get a loan modification, however. The person seeking a modified loan must both own and personally reside at the home in question. This plan is designed to help people stay in their homes, not to aid investors and house flippers. Any person who wants a modification has to be able to offer proof of gross monthly income and have a loan initiated prior to the beginning of 2009. Each loan can only be modified once. The modifications can be initiated until the end of the year 2012. Also, only loans that are backed by Freddie Mac or Fannie Mae are eligible for modification at this time.