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Mortgage Modification Plan Guidelines

The Obama administration generated a simplified loan modification program that aims to reduce homeowner's monthly mortgage payments based on their monthly gross income. There are two types of programs under Obama's plan: The Home Affordable Modification Program and Home Affordable Refinance Program for mortgage refinancing.

How will Obama's Loan Modification Plan Work?

• Servicer will reduce monthly mortgage payments of the borrower to not more than 38% of borrower's monthly gross income.
• The government will assume part of the principal amount and manage other cutbacks to hit threshold of 31% on the borrower's monthly gross income.
• When 31% is achieved, the borrower enters trial period for 3 months.
• If the borrower succeeded in paying timely mortgage payments during the trial period, a new fixed rate will take effect for the new modified loan that will run for 5 years.
• Benefits such as cash incentives are thrown in to lure lenders/investors, servicers to join, and for borrowers to pay on time from trial period until the term ends (5 years).

Who can qualify for Obama's Home Affordable Modification Program?

• Only owner-occupied homes are eligible.
• Applicant must satisfy the Front-End Debt to Income (DTI) ratio of 31% to the monthly gross income set by the program. Total PITIA (principal, interest, taxes, insurance) and HOA (excluding mortgage insurance premiums) must hit this threshold.
• Applicant must satisfy the Back-End Debt to Income ratio of less than 55% to the monthly gross income which is the monthly total debt payable (eg, credit cards, car payments, student loans, etc.).
• Homeowners that have limited liquid assets and serious substantial income loss.
• Loan initiated on or before January 1, 2009.

Home-owners with unpaid principal mortgage balance equal to the following:

• 1 Unit: $729,750
• 2 Units: $934,200
• 3 Units: $1,129,250
• 4 Units: $1,403,400

Take note that the mortgage applied can be modified under this program only once. Your untimely records of delinquent balances will also be waived. If faced with foreclosure, proceedings will be temporarily suspended while undergoing the trial period. Should the applicant fail, foreclosure measures will resume. This is a charge-free program. New borrowers will be accepted until Dec. 31, 2012. Timely mortgage payers are automatically disqualified from this program.

What To Prepare If You Qualify For Obama's Mortgage Plan And How?

• If employed, you must present substantial documents to validate income loss, such as, recent pay slips and income tax return.
• If self-employed, third party documents for profit and loss statement must be provided.
• Substantial information of assets.
• Account balances on all monthly payments and monthly housing expenses, such as, credit cards, student loans, second mortgage, insurance and taxes, etc.
• HUD-counselor approved document that states counseling commitment must be submitted. Only then shall the loan modification take effect.

It is advisable to collect and present all these to the loan servicers for initial assessment. They can help you determine early if you can be considered for a loan modification.

What Are The Benefits Of Obama's Loan Modification Program?

If you qualified for Obama's loan modification modification, the following benefits will take effect:

• Servicer Incentive Payment of $1,000 is paid to the servicer for every eligible loan modified.
• Pay for Success fee of $1,000 additional payout each year for three years to the servicer if the borrower pays timely from trial period of three-months until term ends. A fixed rate for five years will take effect after trial period.
• Pay-for-Performance Success Payment of $1,000 is given to the borrower each year for 5 years which will be redirected to the principal amount provided that borrower follows program guidelines.
• For every successful modification, a one-time incentive of $1,500 and $500 shall be given to lenders/investors and servicers, respectively. A successful loan modification means that the borrower completely made timely mortgage payments during programs term.

Who can qualify for Obama's Home Affordable Refinancing Program?

• Home being refinanced must be a primary residence.
• Current loan must be secured by Fannie Mae or Freddie Mac. Contact them at 1-800-7FANNIE, or 1-800-FREDDIE to inquire or log on online at http://www.fanniemae.com/homeaffordable.
• Applicants must have current and timely mortgage payments for the last 12 months.
• First mortgage payable must not exceed 105% of your home value.
• Must have a stable income.

Note that, mortgage refinancing will be at fixed rate for 15 or 30 years. The interest rate is based on the market rate upon closing. No prepayment penalties will be charged but, applicant will pay for fees related to the mortgage refinancing.

If you are financially incapacitated while indebted to a home of diminishing value, you probably will not qualify for Obama's loan modification programs.

About the Author:

Get your Free Do It Yourself Loan Modification Kit. loan modification kit includes everything you need to complete a loan modification on your own. It will teach you how to negotiate with your lender and most importantly what NOT to say to your lender. The secret to a successful loan modification is how you present your case to the lender. This DIY loan mod kit will explain the loan modification negotiation process in explicit detail.

Visit our website for How to articles, mortgage calculators, free sample hardship letters, foreclosure timelines, and dozens of informative articles on loan modifications and foreclosure. Stop by to check out our growing library of free financial kits. We currently have bankruptcy kits, credit repair, and loan mod with more on their way!

FreeDIYkits "Helping Homeowners Help Themselves"

Source:  - Obama's Loan Modification Plans 101

Home Loan Modification / Loss Mitigation Program

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Loan Modification Credit Report

Question: Will a loan modification, on my 1st mortgage, effect credit bureau?

I am applying for a loan modification. If I decide later to sell my home, will this loan modification effect my credit report, so I am unable to purchase a new home?

Answer: As long as your credit is not terrible already from missing mortgage payments, A loan modification will usually not affect your credit score as long as you stay current.

Important things to know before you get Trade Lines on Credit Report! 25-75 Points!

Mortgage Modification Program Obama

Question: What is mortgage modification? Do I qualify?

My husband and I are current with our payments but, I recently lost my job. I am scared I am not going to find a job anytime soon and we will be in a bad situation. I have heard that all of the Obama programs are for people that are already late on payments or in pre foreclosure. I am not willing to blemish my credit report in order to qualify. Am I qualified for the modification and how exactly will it help me?

Thank you!!

Answer: You best bet is to call the bank NOW. A mortgage modification is where they rework your mortgage without refinancing you. If you claim financial hardship, they may slide you 2 months and tack them on to the end of your term. Hopefully a rate reduction would apply for you.

But here is where it gets tricky. You need to call them immediately before you are late on any payments. Especially if you have credit cards issued from the bank that holds your mortgage.

A slick practice that credit card companies are doing now is when a customer calls up and asks to lower their rate, the credit card company pulls their credit report. If they are late on ANY of their payments, not just to the bank you are talking to, but late on any creditors, they can legally raise your rate. So horror stories have these rates jumping up to 23%

For instance, you call bank A about your mortgage, with whom you also have a credit card. They pull you credit report, and find you have a couple of 30 day lates, they can raise your credit card rate. Then when bank B, another credit card holder, periodically pulls your credit and they see the lates, plus a rate increase by bank A, then they in turn raise your rate there as well.

This can snowball very quickly. They do this because credit cards are unsecured debt and this is their only recourse. So even if they modify your mortgagem they may still be able to get more money out of you thropugh other ways. Also, a loan modification can only be doen once. After that you would have to refinance.

Obama New Rescue Plan, Saving Over 9 million Homeowners. (Modification Program)