subject: Mortgage Loan Modification - What Is It? [print this page] Have you heard all the buzz about the mortgage loan modification program that was signed with the 2009 Stimulus Bill? You must have, unless you live in a vacuum. However, do you know what is actually done when a loan is modified?
President Obama intended this program to help homeowners who are facing the loss of their homes through foreclosure. Many families have fallen victim to economic events and situations that were no fault of their own. These are the people the program is targeted to help. This is called financial hardship. It means something has happened beyond your control. Your house payment went up, your income went down, or your other expenses went up.
If a homeowner is qualified to receive a loan modification, the existing mortgage is changed so that the house payment is lower and more affordable. This is done through a waterfall method. The first thing that is adjusted is the interest rate. It can be lowered as low as 2% to achieve the desired payment. The term of the loan can be adjusted to up to 40 years, which can also help lower the monthly payment.
The monthly payment that is being sought is 31% or less than the gross monthly income. This payment also includes homeowner's insurance and property taxes. If there are required dues to a homeowner's association, that is also included.
If the interest rate and term cannot arrive at the desired payment, sometimes the principle itself can be adjusted. The bank is very motivated to work with homeowners because they receive a $1000 incentive for each mortgage loan modification that they complete.
