Loan Modification Programs

Loan Modification Programs

Loan Modification Programs

There are many different loan modification programs available in order to change the terms of a mortgagor’s loan outside of the original terms of the contract. Often, these loan modification programs try to change at least one of these terms:
Reducing the principal of the loan
Reducing late fees or penalties
Lengthening the term of the loan
Reducing the interest rate of the loan
Adjusting the floating rate calculations
Changing the interest rate to a fixed rate from a  floating rate
Temporary postponing of payments
One of the loan modification programs available is the Homeowner Affordability & Stability Plan, which was set up under the Financial Stability Act of 2009. The purpose of the program is to help up to 8 million eligible homeowners that are at risk of foreclosure keep their homes. The program was created under the Financial Stability Act of 2009. In order to be eligible, a homeowner must meet these requirements:
Their loan began before January 2009.
They have an unpaid balance up to $729,750 (with higher limits for multi-family homes)
The total of the payments must exceed 31% of the gross monthly household income. These payments include principal, interest, homeowner's insurance, and property taxes.
There is documentation and proof of income, a signed IRS 4506-T, and a signed affidavit of financial hardship.
Property owner must live in the home.
Lenders would receive incentives to provide loan modifications for at-risk borrowers who have not missed payments even when at imminent risk of default.
The borrower must be at most 5% underwater.
Loan modifications can only occur once and will only happen until the end of 2012.
With these loan modification programs, homeowners can help by:
Share the reduction costs with the lender, potentially lowering the monthly payments down 31% debt to income ratio.
Give servicers who provide loan modifications $1,000 for each modification along with incentives on still-performing loans of $1,000 annually.
Reduce the principal for homeowners that make payments on time up to $1,000 per year for up to five years.
Create one-time bonus incentive payments of $1,500 to lender as well as $500 to servicers for loan modifications made while a borrower is not behind on payments.
Create incentives for getting rid of additional liens on loans modified under this program.
There are also second lien loan modification programs that use a lender who has participated in the Home Affordable Modification Program. These loan modification programs do not necessarily offer a permanent modification with good terms, but are required to offer one. The requirements for eligibility are the same as the government loan modification programs.




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