· The lender would first be responsible for bringing down interest rates so that the borrowers monthly mortgage payment is no more than 38 percent of his or her income. The magic number baring any additional financial hardships.
· Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. This is where the plan lends its factors to make things more attractive to the investor’s.
· Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs. The lenders and homeowners both should do well with this if it works.
· Borrowers will be put on a trial modification at the new interest rate and payment for three months. If they make all their payments on time, the modification will be implemented at the new rate and be fixed for five years.
Under Obama's plan, loan modifications will be standardized, with uniform loan modification guidelines used by Fannie and Freddie Mac, and then they will be implemented throughout the entire mortgage industry.
There will still be a need for third party assistance through the process to insure a loan modification approval. Even though the process sounds simple, borrowers must fit strict guidelines for approvals. An attorney that specializes in loan modifications and real estate law is by far the best choice. Borrowers must watch out for loan modification scams and make sure to make fraudulent complaints to the attorney general’s office in their state if they suspect they are targeted. Using an attorney for these matters is the only way to go if you want help.
Stay away from loan modification companies unless you can talk directly to a Lawyer, they are a member of the BBB and maintain an advance fee agreement with the Department of Real Estate.
Who is eligible for a loan modification?
To qualify, you must:
· Have originated your mortgage before Jan. 1, 2009.
· Be an owner-occupant. Non- owner occupied properties may be modified but not under the Obama plan.
· Have an unpaid balance that is equal to or less than $729,750 (for a single-family home).
· Have trouble paying your mortgage due to financial hardship. That could be because you have had an increase in your mortgage payments, or because your income was reduced or you suffered a hardship (like medical problems) that increased your bills, or, you can show that you soon will be unable to make your payments. You will be required to enter an affidavit of financial hardship.
<https://www.efanniemae.com/sf/formsdocs/forms/1023.jsp> It is best to get assistance and proper advice in completing this form.
· Your monthly mortgage payment must also be more than 31% of your gross (pre-tax) monthly income. This is another area where help from an attorney that prepares loan modification request may be necessary.
According to the Department of Treasury
Who's not eligible for a loan modification?
Speculators or those who bought homes for investment purposes -- are not eligible. All homes must be owner/occupied. Also, if you cannot afford the home due to job loss or a complete inability to pay, you will not be eligible. Also, mortgages with amounts above the conforming loan limits <https://www.efanniemae.com/sf/refmaterials/loanlimits/index.jsp> would not be eligible. For these reason alone you may need to hire a loan modification attorney to represent you. Lenders guidelines may vary from investor to investor.
How does someone get a loan modification?
First, gather this information:
· Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources.
· Your most recent two years income tax return.
· Information about your assets. This is where one might consider professional advice of what the lender wants to see to qualify.
· Information about any second mortgage on the house.
· Account balances and minimum monthly payments due on all of your credit cards.
· Account balances and monthly payments on all your other debts such as student loans and car loans.
· A letter describing the circumstances that caused your income to be reduced or expenses to be increased (job loss, divorce, illness, etc.).
Second, call your mortgage servicer and ask to be considered for a "Home Affordable Modification." The number is on your monthly mortgage bill or coupon book. Honestly state your situation. They will assess your financial state through phone calls and paperwork to determine whether you qualify for a loan modification. Keep copious, detailed notes on who you speak with and details of the conversations so you have documentation down the road if you are faced with foreclosure.
Third, depending on the direness of your financial difficulties, it’s always good to hire legal counsel. Get a referral from your local state bar association.
Fourth, call a local HUD-Approved Housing Counseling Agency <http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm> for guidance.
Lastly, you can find more loan modification information at http://www.loanmodificatiionhelpcenter.org/
How do loan modifications benefit lenders and borrowers?
A loan modification is usually a win-win situation: the lenders get their money in a reworked fashion and borrowers get a new chance to support their mortgage payments at a reduced cost.
Also, under the Obama plan, there are incentives for both lender and borrower. According to the Treasury:
· Pay for Success Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive pay for success fees awarded monthly as long as the borrower stays current on the loan of up to $1,000 each year for three years.
· Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
· Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
· Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration -- together with the FDIC -- has developed an innovative partial guarantee initiative. The insurance fund to be created by the Treasury Department at a size of up to $10 billion will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.
Also, banks would rather have you stay in your home than risk foreclosure since they stand to lose more money through foreclosure.
Think about it: a bank would need to make any repairs to the home, pay real estate agents to list it, and then perhaps list it at a discounted price. And, if the real estate market is slow, the price could be further reduced. There originally were only a few law offices providing loan modifications in the entire country up until lately. The Feldman Law Center in California has had great results for well over a year now with loan modifications. Mr. Steven C. Feldman was one of the original loan modification attorneys and has practiced law for over 30 years. A nationally recognized attorney, Feldman has helped thousands of home owners avoid foreclosure. For more information about Loan Modification please call us at (800) 588-0425 or visit http://www.feldmanlawcenter.com/
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