4 Things to Remember about Mortgage Loan Modification

You probably know people who are having problems paying their monthly mortgage loans. In the midst of this crisis, who doesn’t know at least one? Homeowners in distress can remain hopeful in spite of the current crisis. To help responsible homeowners who have been affected by the economic crunch, the Obama administration has laid out several government programs to help them endure these hard times.

The “Making Home Affordable” Program has four mortgage loan modification programs under its umbrella to help distressed homeowners: the Home Affordable Modification Program; the Second Lien Modification Program (2MP); the Home Affordable Refinance Program; and the Home Affordable Foreclosure Alternatives Program.

Remember the following in getting help for mortgage loan modification:

You need to qualify for government help.

The government is willing to help responsible homeowners modify their mortgage loans, as long as they meet the government-set criteria. The “Making Home Affordable Program” can help anyone who meets the following criteria:

  • Ownership of a one- to four-unit home
  • Their mortgage is either owned or guaranteed by Fannie Mae or Freddie Mac
  • Their mortgage payments have been always on time for the past 12 months
  • Their mortgage is not more than 125% of their home value
  • Their monthly mortgage payments are more than 31% of their monthly income
  • Their unpaid principal balance is within the $729,750 loan limit

Consultations with a HUD-approved housing counselor are free.

Housing counselors approved by the HUD provide their services for free. Be wary of housing counseling agencies who will offer you their services in exchange for fees. There are unscrupulous counselors who will offer to help you manage your mortgage loan modifications with the government, talk with your mortgage company, and then charge you with professional fees for their services.

You do not need to pay for anything in seeking government help about your mortgage loan modification. A housing counselor can even contact the mortgage company on your behalf to negotiate for better terms. The HUD holds free counseling sessions across the country in coordination with housing counseling agencies to help responsible homeowners who are in financial distress.

The government pays for your loans.

If you’re wondering how the program works, it is as simple as A-B-C. The government subsidizes the loans, paying for the rest by using taxes. Participating banks in the program can benefit from government-issued incentives, while requiring them to reduce the total amount of mortgage payments by as much as 38 percent of a borrower’s monthly income. Homeowners who are under the program will only set aside as much as 31 percent of their monthly income for mortgage payments.

Interest rates for mortgages approved under the “Making Home Affordable” Program remain locked for five years, after which they rise by a percent per year. To enable homeowners to pay for the mortgages, terms can get extended for as long as 40 years.

Not all loans are covered.

The government formulated the program to help responsible homeowners weather the economic downturn. The program will not help everyone, as set in the program’s criteria. The program, too, will only cover loans issued before this year. Those who qualify for help have only until 2012 to seek government help.

According to federal regulations, only “at risk” homeowners can hope for any government assistance. Those who want to take advantage of the program needs to prove the following:

  • Serious hardship
  • Income reduction
  • Increased expenses
  • Probability of increased interest rates
  • High debt-to-income ratio
  • Undervalued home
  • And other factors for a possible payment default.

So if you know someone who qualifies for government help and needs it badly, you better tell them quick before the looming 2012 deadline.

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2 Responses to “4 Things to Remember about Mortgage Loan Modification”

  1. JH |  Jan 24, 2011 at 1:34 pm

    Here’s the truth: loan modifications are the fastest, cheapest, and easiest way to fix your mortgage problems—and nearly everyone qualifies! Let me be clear here… this is NOT a refinance, this is NOT a short sale, foreclosure, or bankruptcy.

  2. beachdude |  Jan 25, 2011 at 10:34 pm

    Great article.

    Here is a list of the most common mortgage
    modification items to change or adjust:

    - lowering the mortgage interest rate
    - reducing the mortgage principal balance
    - fixing adjustable interest rates within the mortgage
    - increasing the loan term throughout the mortgage
    - forgiveness of payment defaults and fees
    - or any combination of the above