Obama’s Loan Modification Guide – A Closer Look
This document is about loan modification process and how to fully understand how to get the right loan modification plan for your current loan. The Obama administration’s plan to salvage America’s dying economy is deeply rooted in restructuring troubled mortgages. The government has dedicated $75 million for this plan to materialize, and as part of the effort to pull all the stops on the rising foreclosure rates, they have been encouraging banks, lending institutions, and loan owners to modify loans. On the other hand, economists and mortgage experts remain unconvinced about the plan considering that during the first quarter of implementing this program, more than 50% of restructured loans went bad again after only a few months. According to them, a well-oiled system on mortgage modification is essential to make this plan work. In response to this, the administration unveiled the Obama’s loan modification guide to provide a detailed plan on how to put a cap on the mortgage crisis. In the US, as many as 4 million homeowners need help to avoid foreclosure and with the current state of the economy, this number is expected to rise. The US mortgage dilemma has gotten to this point not
because of upside-down loans, but because borrowers could not make the mortgage payment they have agreed to pay. The solution to this, according to the Obama loan modification guide, is to help homeowners make those payments by reducing the amount they are required to pay. This can only be possible through the cooperation of banks and lending institution to lower the monthly payments to no more than 31 percent of the borrower’s monthly salary. The lender should first reduce the interest rate to 2 percent in order to achieve the 31 percent target for reduction. When these are still not enough to further push the payment lower, the loan term would be extended to up to 40 years. If that still does not suffice to hit the goal, the lender must offer forbearance on the loan principal without interest or lowering the mortgage principal. Because the cooperation of lenders and borrowers are so crucial for this program to work, the Obama administration offers a $1,000 cash incentive for every loan lenders have successfully modified while borrowers will have a thousand dollar cut on their principal loan if they would be able to make their payments on time. Lenders will also receive an additional $1,000 each year if borrowers are able to pay their mortgages on schedule. To hasten the process of modifying mortgages, the administration also included in the program the valid financial hardships that would qualify a borrower to receive a loan restructuring. Only those undergoing serious
financial hardships such as salary deduction, loss of income, loss of employment, etc, would be granted this mortgage process. Lenders would have to look into the borrower’s financial status, credit report, and other documents to verify the hardship. On the other hand, borrowers should sign an affidavit and support their hardship claims with documents. Once the documents are verified, the lender would then perform a net present value test to identify the amount that could be generated from modifying the loan versus the amount that could be gained from not restructuring it. If it turns out that more cash would be generated from modifying the loan, then the restructuring would push through. In a nutshell, the result of this test will determine whether a loan should be modified or not. Obama’s loan modification guide is definitely an important step to help American homeowners rise above the looming foreclosure. The plan is well defined and all the major points and concerns have been discussed comprehensively. However, the plan would mean nothing without proper implementation. The government, as suggested by mortgage experts and major banking institutions, should see to it that the loan restructuring program be executed according to the procedure stipulated in the plan. At the end of the day, the cooperation of the government, lending institutions, and borrowers all contribute to the success of this program.
Obama’s Loan Modification Guide – A Closer Look
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