Government Loan Modification Program
Details of President Obama’s stop foreclosure plan “Making Homes Affordable” was released yesterday (March 4th, 2009) and so begins the journey of Government Assisted Loan Modifications! At www.AdjustMyLoan.com we have always been a fan of the Government subsidizing lenders, servicers, and investors for completing loan modifications and think this is a step in the right direction but is it enough? Below we outline some facts of the new plan as well as give you a quick video to watch. About 7-9 million struggling homeowners should qualify for help according to the plan but in won’t help many in states like Arizona, Florida, and California where home prices have declined so much that homeowners are underwater over and above the plans 105% qualifying mark. Also, one noticeable missing piece is a subsidized “Principal Balance Reduction” measure that would reset home values to current market rates! Maybe the future bankruptcy “Cram down” legislation that is trying to get passed right now will force lenders to enact voluntary programs to write down negative equity!
HOMEOWNERS BEWARE…even though this plan is subsidized by the Federal Government it is not a forced program. Lenders can choose to work within the guidelines of the plan or not so remember that your bank still has their best interest at heart and not yours. They could still put you into a loan modification program that does not necessarily have the best loan terms available. By educating yourself on your options or getting professional representation you could walk away with a much better Loan Modification than if you just call your lender directly without first devising a plan.
Now let’s talk about loan modifications:
How Will The Modification Part Of The Plan Work?
In summary, participating servicers will (in order):
•Determine that a loan meets the minimum eligibility criteria (owner occupied, originated before January 1, 2009, UPB equal to or less than $729,750). If yes:
•Obtain sufficient income information to determine if the borrower has a front-end debt-to-income (DTI) ratio of 31%or greater (verbal income may be accepted for initial evaluation subject to verification prior to final approval). If yes:
•Capitalize (add to the loan amount) accrued interest, past due taxes and insurance, delinquency charges paid to third parties (e.g., for inspecting the property), and escrow advances by the servicer - but not late fees or other default fees charged by the servicer;
•Determine how much of an interest rate reduction is required to get the borrower’s mortgage payment to 31% DTI, and if the DTI still exceeds 31% at the rate floor of 2%, modify the loan in other respects specified in the Guidelines;
•Apply a Net Present Value (NPV) test to determine if modification (including the incentive payments) provides the investor with a better financial outcome than foreclosure. If yes:
•Put the borrower on a trial modification at the new interest rate and payment for three months.
•If the borrower is current at the end of the trial modification period, the servicer will execute a modification agreement that includes escrows for taxes and insurance even if the prior loan was not escrowed.
At AdjustMyLoan.com it is business as usual. We are helping more and more homeowners negotiate a reasonable loan modification with their lenders and continue the fight to save as many homes as possible from foreclosure. Many homeowners have questions about this new plan but only time will tell if it really works or not. At the end of the day, it still is a voluntary plan that only affects mainly Fannie and Freddie loans and has strict qualifying measures that could bog down the program. If you are a homeowner trying to navigate your way towards a loan modification, please call our Loan Modification Experts at 1-800-557-7573 and recieve a FREE LOAN MODIFICATION CONSULTATION.
INFO ON THE MAKING HOMES AFFORDABLE PLAN
Summary Of Modification Guidelines
