Understanding the Loan Modification Program
For people who are having problems keeping up with payments or trying to refinance their home for lower mortgage payments to avoid foreclosure, there is help on the way. A loan modification program helps those who are in default of 30 days or more, and those who cannot refinance due to decline in housing values and credit tightening.
The economy has turned borrowers who used to be able to pay their mortgages into potential foreclosure risks because of pay cuts, job losses, or rapid declines in appraised values on their homes.
The problem is that there are a lot of people who owe more on their homes than what it is currently worth. To make matters even worse, homeowners that are forced to sell their homes below the appraised value; so they can get out from under the mortgage payments they cannot afford any longer.
Some claim that a loan modification is the answer, but this information can be confusing. To make it easier, there are companies that you can consult who can help with the loan modification process. Homeowners can obtain a free consultation from a modification specialist who will be able to determine the modification program that is best for their needs, without all the confusion.
Once you go into loan modification, then it is the only modification you can get during the life of your loan. So keep this in mind and keep up with the terms of the modification. If you are one of the unfortunate borrowers that are 30 days behind, then you qualify as a default borrower and the more quickly your get to working on your loan modification the better your chances.
What the modification program does is get the homeowner’s mortgage payment, including interest, taxes, insurance and any other fees, reduced so that the payment is not more than 31% of the homeowner’s gross monthly income. To do this the loan modification companies work with your lender to adjust the mortgage interest rate, the terms of the loan and the principal amount owed.
Terms are lengthened to as long as 40 years, interest rates are reduced to at least 2%, and the principal amount owed is reduced as a portion of the debt is forgiven by the lender or the repayment of it is delayed.
However, lenders are not required to take part in the loan modification program. To encourage their participation, the government is offering incentives to these companies. For example, for every year that a borrower remains in the program, the government will give the lender $1000 for up to 3 years. Then of course there is an incentive for the borrowers as well to stay in the program, the government will give an additional $1000 to the borrower by applying it directly to the principal of their loan over a 5 year period.
Borrowers currently in foreclosure or bankruptcy may be eligible under this new plan. In fact, those who have been forced to declare bankruptcy may be required by the courts to do a loan modification.
There is fantastic opportunity for eligible borrowers in the loan modification programs. If you are in one of these, then you should seek a consultation with a professional who can help you into the program that is right for you.