Loan modifications are a contract between a lender and a borrower to lower mortgage rates when the borrower/homeowner cannot afford their monthly mortgage payments due to financial hardship. The Obama administration has tailored the loan modification system to fit the growing economy and housing crisis. Under Obama’s home loan modification plan there are distinct criteria a homeowner must follow:
- Your mortgage must have been secured before January 1, 2009.
- You must live on the property you are trying to reach a loan modification agreement on.
- Your primary mortgage must be under $729,500.
- You must be able to present full documentation of your income, along with tax returns and pay stubs.
- You must sign a document that verifies that you are under financial hardship.
- If your total household debt is over 55% of your household’s income, you must seek financial counseling.
Besides these guidelines set by the Home Affordable Modification program, several lenders will not accept negotiations from homeowners for a loan modification agreement unless that homeowner has been late on their mortgage payments. Obama’s new home loan modification plan allows millions of Americans who were not eligible for loan modification previously to qualify now. The guidelines are strict, but are much more welcoming than the previous criteria for loan modification.
Obama’s home loan modification plan gives everyone, within means, the chance to receive loan modification assistance. The plan also accommodates lenders, as it provides $1,000 dollars per successful loan modification agreement per year for three years, providing that the homeowner pays their reduced mortgage payments on time.
The new plan does little to help homeowners who have reduced value on their homes who would like to sell them, rather it provides assistance to homeowners who do not want to foreclose on their home. Home loan modification agreements are not a reinstating of a homeowner’s mortgage, so homeowners are stuck with the value they bought their home at, even if the value is lower in today’s economy. Essentially a homeowner who bought their home at $400,000 with a current value of $275,000 will continue to pay the mortgage on the $400,000. Home loan modification agreements do not alter the value of the home in the eyes of the lender, as the initial mortgage still stands, it is just altered to fit the homeowner’s current financial situation.
Obama’s home loan modification plan does open new doors for families in need who are on the brink of foreclosure, but it does not reach any further than that. It can take quite some time for a homeowner to get qualified and there are hoops to jump through, but with so many Americans on the brink of bankruptcy there is not much choice.