Federal Loan Modification

President Obama's federal loan modification program - a lifeline for struggeling homeowners?

Homeowners facing financial hardship due to unaffordable mortgage payments could possibly qualify for the Program, recently initiated by President Obama. This is a lifeline to borrowers who are stuck in high interest rate loans, but may not have been able to qualify to refinance or get a loan workout with their lender. The plan is targeted to help up to 5 million borrowers find a solution to avoid foreclosure with $75 billion in funding. Here is some information about the plan and who might qualify.

Obama's loan modification program seeks to offer low, affordable and sustainable mortgage payments that will equal 31% of the homeowners gross monthly income. That figure will also include taxes, insurance and any homeowners association dues. In order to induce lenders and servicers to participate, the Treasury department is offering monetary incentives for each loan that is modified under this plan. The government will also share in the cost to the bank by covering some of the lost revenue due to reduced interest rates. Borrowers will also be paid to participate in the form of success bonuses. For every month that the homeowner remains current on the new modified loan, they will be paid $1000 per year up to $5000. This amount will be credited towards the loan balance to help replace lost equity.

Participating lenders will have to review each request from homeowners interested in applying for the Obama federal loan modification program. Each borrower will have to provide required documentation and a decision will be made on a case by case basis. Here is a list of some of the required paperwork homeowners need to gather:

  • Loan modification application form
  • Current pay check stubs for all borrowers
  • Most recent tax return (Federal only)
  • Proof of financial hardship situation
Homeowners do not have to be delinquent on their payments to qualify-in fact the lenders will be paid more money by the plan if they offer help to borrowers who are not yet delinquent, but facing the prospect of financial hardship. There is expected to be a large influx of applications, so homeowners are encouraged to get started immediately and to be patient as the process is implemented. Successful candidates will be able to prove that they are suffering or will suffer a financial hardship making the current payment unaffordable. They must also be able to meet the 31% debt ratio requirement. Homeowners can get a jump start on the application by learning how to pre-qualify themselves and knowing how to prepare their loan modification forms and hardship letters properly.

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