Loan modifications are at the core of the federal governments strategy to help slow the constant onslaught of foreclosures that are destroying home values across the nation. They are an integral part of the $75 billion Making Home Affordable plan which has the sole purpose of slowing the rapid number of foreclosures flooding the nation’s market.
This $75 billion plan intends to provide the means to modify millions of mortgages in the next few years. There are two parts to the Making Home Affordable Plan – The Home Affordable Refinance program and the Home Affordable Modification program; we’re talking about the latter.
As of December 10, the Obama Administration reported that there were nearly 728,000 mortgage modifications underway, but only 31,382 modifications had been converted from a trial period to a permanent modification. In my opinion, this number is truly the only one that matters. If jobs were coming back and the economy was showing a stronger recovery, temporary might be acceptable.
They also announced that modifications are saving homeowners an average of $550/month and that “most” borrowers are meeting their new financial obligations; unfortunately, we don’t know what “most” means. These numbers are certainly more impressive than earlier numbers indicating that the program may be gaining steam.
In a November 30th press release, 650,000 mortgages were under modification, a jump of 78,000 mortgage modifications is pretty significant for a 10-day period, let’s keep our fingers crossed and hope that these trial modifications go permanent. I’d hate to see us continue wasting millions of dollars on modifications that only last a few months, but more importantly, I’d hate to see the foreclosure rate stay constant or increase.
For home owners that still don’t know what a loan modification is, here are some details concerning loan modifications and how the Making Home Affordable program fits into the picture.
- loan modifications are an attempt made by the federal government to slow the rise in foreclosures by making it easier for home owners to afford their home.
- The loans must have been originated on or before January 1, 2009
- Every borrower has to fully document income
- Primary residences only; occupancy will be verified through credit reports and other documentation
- The government is pressuring lenders to reduce a home owner’s payments to at least as low as 38% of adjusted annual income. The principal amount of the mortgage and the interest rates can be reduced to help make the payments fall within this range.
- Once the loan is modified and the payments no longer exceed 38% of the home owner’s income, the federal government then share the loss in funds with the lender to bring the payments down to 31% of the home owner’s income.
- Lenders receive $1,000 for completing a loan modification. They also receive an additional $1,000 a year for the following three years if the borrower keeps up with the payments.
- Lenders who are able to compelte a loan modification before a borrower falls behind on a payment will receive a $1,500 bonus; servicers receive a $500 bonus.
- Borrowers that stay current on their modified mortgages will also qualify for an additional $1,000 a year for a max of 5-years. This is applied to the loan’s balance.
- To qualify for a loan modification, borrowers must be employed and prove that they are struggling to keep up with payments because a decrease in income.
To see if you qualify for or are looking for more information, visit www.makinghomeaffordable.gov
Sources:
Obama Administration Releases New Data on Mortgage Modification Program
Making Home Affordable – Summary of Guidelines
See Also:
What’s Making Home Affordable all About? FAQLoan Modification Program Details – NHS
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Let’s hope the program proves to be more successful than it has been so far. I’ve actually met a person that had their home saved by the program. It took them several weeks of calls and persistence before they saw some results.
Chas@Las Vegas Real Estate´s last blog ..First Time Home Buyer Tax Credit Extended
I truly hope the program helps people that are really in need. Unfortunately, the federal government is running…
I just wish the banks would be more helpful with the process and just get this crap over with. They are going to lose more money if they don’t mod when the home goes into foreclosure anyways.
My feeling is that the banks really didn’t want to do this in the first place, otherwise it would have been done, or at least pushed through better. How come banks seem to be the only entity that doesn’t see that getting a lot of something is better than getting nothing at all?
Mitch´s last blog ..Citigroup Temporarily Suspends Foreclosures
Hi,
I think people want every thing in their home but their financial conditions not in such a way that they can fulfill their dreams so loans are a very special thing for to do this.
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