Understanding Mortgage Loan Modification: Most Frequently Asked Questions
Homeowners today face many challenges, including meeting their monthly
mortgage payments. Those homeowners who find themselves in difficult
straits now have a way to potentially resolve their problems by making
use of a mortgage loan modification program. Previously, if a homeowner found
they were not able to make their mortgage payments, there were few
options available to them. For most homeowners in such circumstances,
the first option was foreclosure.
Fortunately, homeowners today have an opportunity to avoid that option,
yet they are likely to still have numerous questions about home loan
How Did the Home Loan Modification Program Develop?
The mortgage loan modification program is part of the Making Home
Affordable Plan. The plan went into effect on February 10, 2009.
Homeowners who meet the criteria for the program have the opportunity to
change the terms of their mortgage loan so they have a chance to remain
in their homes.
Who Qualifies for the Home Loan Modification Program?
Individuals who live in a home that they owe a mortgage on will qualify
for the loan modification program. The mortgage loan must have been
signed prior to the beginning of 2009. In addition, the loan cannot be
for more than $729,750. The homeowner's gross monthly income will need
to be verified prior to obtaining a loan modification.
How Does the Home Loan Modification Program Work?
The first step is calculating the percentage of the homeowner's gross
monthly income that is put toward paying the mortgage. Under the home
loan modification program, homeowners who are eligible can potentially
have their mortgage payments modified so that payments do not exceed 38%
of their total gross monthly income. The government can then match the
reduction from the lender in order to lower the loan payment to 31%.
After a new monthly mortgage payment has been agreed upon, it will
remain in effect for a total of five years.
Who Pays for the Home Loan Modification Program?
Such modifications are made possible through the Homeowner Stability
Initiative. Taxpayer funds amounting to $75 billion will be spent in
order for home loan modifications to be made available. It is
anticipated that between 3 and 4 million homeowners will be assisted
through this plan.
Are there Any Limitations to this Plan?
At the current time, the program is not available to house flippers and
investors. In addition, a credit check must be performed on all program
applicants to ensure they actually live in the home before the
modification will be approved. Only Freddie Mac and Fannie Mae insured
loans are eligible for the program. In the event the loan is insured by
another company, such as a subprime loan, modification is not available.
How do Homeowners Apply for the Program?
Homeowners who are interested in applying for the program should contact
a financial counselor who has been approved by the US Department of
Housing and Urban Development. Such not-for-profit groups are able to
provide applicants with free financial advice as well as help applicants
to determine the next step that should be taken.
What Else do I Need to Know about the Program?
Only first mortgage are eligible to be refinanced under the program. If
you have a second mortgage, it must stand as is. Homeowners can
potentially finance up to 105% of the current value of their home.
Who Can Benefit from this Program?
This program is intended for individuals who:
• Owe more on their home than it is worth
• Have an interest rate that is higher than the current interest rates
• Have an adjustable rate mortgage that has either re-set or will re-set
• Would like to refinance but are not able to do so because their loan
to value ratio is higher than 80%
• Are not able to refinance because of reduced monthly income
What are the Benefits of this Program?
There are numerous benefits related to this program, including lower
closing costs, more lenient underwriting guidelines, the ability to
possibly avoid an appraisal and the ability to avoid mortgage insurance.
For homeowners who have found themselves in a difficult situation and
are concerned they could potentially lose their home, this program can
provide welcome relief, allowing homeowners the opportunity to remain in
their home and avoid the prospect of foreclosure. If you do find
yourself in this type of situation, remember that it is always better to
go ahead and apply for the program as early as possible rather than
waiting until the situation becomes even worse.