Obama Announces Expanded Mortgage Modification
The government's mortgage modification plan was off to a bad start last year
, although increased lender participation in the later months helped it reach its goal of helping 500,000 homeowners. As we head off to 2010s second quarter, the Obama administration is again gearing up to reach more borrowers and stem the surge of home foreclosures. Below are some of the changes made to President Obama's mortgage modification program, and what they can mean for you.Modification for second mortgages
Previously, lenders could only modify loans on primary homes, keeping borrowers with second mortgages from benefiting fully from the program. Most second mortgages in default were actually "piggyback" loans that banks had offered to allow clients to reduce or waive the down payment on the first loan. Today, both first and second mortgages can be modified without one affecting the other. Most major lenders have already announced their participation in the program, and many smaller banks are also expected to take part.
Principal reductions
The new program also supports principal reductions as a viable form of mortgage modification. Principal reduction means writing off part of the principal, or the actual amount owed on the home (minus the interest and other fees). The change was introduced after lenders reported that some borrowers were too much underwater to be helped by more common approaches such as interest rate reduction. Most lenders grant the reduction after the borrower has completed a specific number of modified payments.
Forbearance for jobless borrowers
Last year, one needed a stable income to qualify for a mortgage modification, but rising unemployment meant that only a small percentage of troubled borrowers were eligible. The new program now allows unemployed homeowners to get forbearance, a form of mortgage modification wherein mortgage payments are lowered for a given number of months. It may not be as ideal as a conventional modification, but it allows borrowers to keep foreclosure at bay while looking for a new job or while trying to get back on track.
Short sales as options
The government has also added short sales to its assistance plan, offering incentives to lenders who approve or help facilitate short sales for troubled borrowers. Short sales allow homeowners to sell their homes for less than the mortgage owed on it, and forward the proceeds to the lender who will consider it full payment. Unlike mortgage modification, it does not keep the borrower in his home, but it reduces the credit damage and personal stress of a foreclosureand it's easier for both parties to recover their losses.
by: Loan Modification Attorney