Every newspaper, television news outlet and website has reported on loan modifications in one form or another. Some of this reporting has given false information, bad intelligence and an overall frustrating report of the current situation. Between the increased focus on the loan modification industry, President Obama’s FDIC loan modification plan and the countless bank reports on loan modification status, people are overwhelmed with all the information on loan modifications.
The Obama-Biden Plan
Here are six important things any homeowner needs to know about the federal loan modification program:
1. Monthly payments – President Obama’s loan modification plan focuses primarily on the concept that Americans will continue to pay their mortgages so long as they can afford the monthly payments. This means that rather than focusing on the value of the home, loan modifications focus on lowering the amount of the monthly payment. Even billionaire Warren Buffet endorsed the idea.
2. 31% - The plan calls for participating loan servicers (lenders) to reduce monthly payments to no more than 38 percent of the borrower’s gross monthly income. Meaning, if the person’s monthly income is $10,000, then the monthly payment cannot be more than $3,800. The government would then chip in to further bring the monthly mortgage payments down to no more than 31 percent of the borrower’s monthly income.
3. Cash encouragement – Loan processors are being paid $1,000 for each loan modification and will get an addition $1,000 payout each year for as much as three years as long as the borrower continues making payments. Borrowers can also get up to $1,000 knocked off of the principal of their loan each year for as many as five years if their payments are made on time.
4. Financial hardship is important – The Obama loan modification plan is not designed for speculators who bought two and three homes during the boom, hoping to flip them. The plan is designed for responsible homeowners who are ensnared by this current housing slump and the proceeding recession. Only owner-occupied homes which are the primary residence with an outstanding principal balance of less than $730,000 are eligible.
5. Net present value? – In order to determine if a mortgage is eligible for a loan modification, the loan servicer must perform a “net present value” test which compares the expected cash flow the loan would generate if it is modified with the expected cash flow it would generate if it was not modified.
6. Second mortgages and equity loans – The federal loan modification plan addresses the issue of second liens, such as home equity loans and home equity lines of credit, by offering special incentives to eliminate them. This part of the plan is unclear however.
Loan modification attorneys have been working with lenders, banks and borrowers for far longer than the federal government. While this plan is ambitious, there are no guarantees, especially when such large institutions as international banks and the federal government attempt to work in unison. A loan modification attorney might be your best option to get the best loan modification possible. Their knowledge and experience with the real estate and banking industries, plus their ability to meet your needs one on one provide you with options that may not be available to you with the federal loan modification program.
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