Loan modification is a possible option for homeowners facing unaffordable mortgage payments, declining home values and a troubled economy. President Obama,the Treasury Department and many lenders are offering a loan modification program that will feature easier, quicker and more helpful procedures to assist homeowners to find a loan workout solution. Many homeowners facing foreclosure are desperately seeking help from their existing home loan banks, and up until now, help has been slow in coming.
The federal stimulus loan modification plan is called Making Home Affordable Modification. Funded by $75 billion in stimulus money, it aims to reach almost 5 million at-risk homeowners with an affordable mortgage payment. The program is voluntary, but the majority of lenders and servicers are participating-mainly due to the financial incentives offered for each qualified loan that is modified using the standard terms put in place by the Feds. A list of participating banks is available on the makinghomeaffordable.gov website.
So, just what does it take to apply and qualify for Obama’s stimulus loan modification plan? There are some basic requirements which must be met:
- Loan originated prior to January 1, 2009
- Loan amount less than $729,750 for single unit properties
- Current mortgage payment equals more than 31% of monthly gross income
- Live in the home as your primary residence
- Facing a financial hardship situation due to less income or more debts
Interested in apply for this plan with your lender? Here is what you will be asked to provide to your bank-either over the telephone or in the form of a written loan modification application.
- Description of financial hardship situation-what has happened, when it happened and what steps you have taken to try to correct the situation
- A detailed accounting of your monthly gross income-all sources, including any room mate income-and a listing of your monthly bills. The bank will run your credit report to verify your minimum payments due on your accounts that are reported, other items like food, gasoline, babysitter, etc can be adjusted to fit within your new, trimmed down budget.
- Information on your assets-cash in the bank, retirement accounts, etc. If you have more than 3 months of reserves in the accounts you list on your application, you may not be deemed to be in a hardship situation.
- You will be asked to provide copies of your 2 most recent paychecks, 2 years tax returns, 2 months bank statements, proof of any other income and a written explanation of why you need a loan modification-Hardship Letter.
Why is a loan modification something you should apply for? While the economy seems to be collapsing around the world, and home values continue to decline, loan modifications seem to be one viable, low cost solution for homeowners to stay in their home and ride out the storm. While not every borrower will qualify for a loan modification, hundreds of thousands of homeowners have already received loan modification help, and these federal programs promise to help thousands more to find a loan workout solution.
Homeowners need to take the time to learn about their options, educate themselves and be proactive in working with their lender. It is estimated that over 70% of all foreclosures could have been prevented if the homeowner simply contacted their lender. Waiting too long is the worst thing a troubled homeowner can do, as soon as the borrower sees a problem being able to make their mortgage payment, they should call their lender and start the process. The federal government is encouraging all distressed homeowners to work directly with their lenders to find a loan workout solution.
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