Home Loan Modification

Loan modifications allow the bank to make loan payments more affordable for borrowers. They may change interest rates, loan terms, loan balances, or other parts of the loan agreement. For a closer look, see how loan modification works.

One common fear people have is to lose their home because of a financial difficulty. This is because there have been more than one million home foreclosures in the recent years. Sadly, this has also had a big influence on the economy of the US.

Because of this, there are now available loan mortgage modification programs which can be helpful to the people who are facing foreclosure. But what is this modification program really and who can be eligible to get one?

There are a lot of myths surrounding lenders and servicers as to what they will and will not do during the loan modification process.
The confusion and inaccurate data that is propagating the internet and the news is based on ill-informed bloggers or journalists who really have no idea what is going on in the loss mitigation arena. This to me is akin to someone who studies baseball and claims to be an expert, but has never caught a ball or swung a bat in their lives. How can anyone take them seriously? How can these same people be relied on by the media as “experts” when they have never even played the game?

What is a loan modification?

Whether you call it a loan modification, mortgage modification, restructuring, or workout plan, it’s when a borrower — who is facing great financial hardship and is having difficulty making their mortgage payments — works with their lender to change the terms of their mortgage loan. The workout plan could result in temporary or permanent changes to the mortgage rate, term and monthly payment of the loan. The plan’s goal is to help the borrower reduce their monthly mortgage payments to 31% of their gross income. 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.

At the heart of the President Barack Obama’s ambitious plan to rescue the housing market is the conviction that restructuring distressed mortgages will keep struggling borrowers in their homes and help insert a floor beneath plummeting property values. With $75 billion dedicated to reworking troubled loans, that’s a big bet—especially considering that a top banking regulator said last December that almost 53 percent of loans modified in the first quarter of 2008 went bad again within six months. But supporters argue that mortgage modifications need to be properly engineered to work—and many early ones weren’t. To that end, the Obama administration on Wednesday unveiled fresh details on its plan to restructure at-risk loans and help as many as four million home owners avoid foreclosure. Here are seven things you need to know about Obama’s loan modification program.

The Home Affordable Refinance portion of this plan helps homeowners that have lost value in their home, but are still current on their mortgage payments. It gives borrowers with conforming home loans backed by Freddie Mac and Fannie Mae the ability to refinance their homes with little or no equity. Those of you that could not refinance your mortgage into a lower interest rate loan, because you lacked the necessary equity, may now be able to receive a loan for up to 105% of your home’s market value.

How does it work? Under the program, borrowers are permitted to have their home loans modified only once. Lenders would be able to lower interest rates until they comprise no more than 38 percent of a homeowner’s monthly income, and then the government would partially subsidize the rest until the ratio is 31 percent.

The new interest rate could go as low as 2 percent and would last for five years, after which it would be gradually increased every year. Alternatively, lenders can extend the term of the loan for up to 40 years, shift the capital or forgive some of the principal.