Foreclosure Fix: Obama’s plan released

The details of Obama’s Foreclosure relief program have been released. If you bought a home prior to January 1st, 2009 and you owe less than $729,500 on your Primary Residence you may be eligible for a Loan Modification.

Some of the Requirement of the plan include but are not limited to the following:

  • Mortgage obtained prior to January 1st, 2009
  • Mortgage amount less than $729,500
  • Primary Residence Only
  • Fully document your income by providing tax returns and pay stubs
  • sign a statement of financial hardship
  • go for counseling if their total household debt – including auto loans, credit cards and alimony – total more than 55% of their income

Modifications may be structured as follows:

  • Servicers are asked to modify loans to meet a 38% total house payment and the government will subsidize servicers dollar for dollar to lower that ratio  to 31%. The interest rate can’t go below 2%.
  • lender can extend the term of the loan up to 40 years or shift part of the principal to the loan at no interest. Servicers also have the option of reducing the loan’s balance.
  • The new interest rate will remain in place for five years after which the interest rate will Increase 1% per year until it reaches the original rate or the prevailing rate at the time of modification whichever is lower.

Loan Modification plans focus on people who are behind in their mortgage payments or at risk of defaulting on their mortgage. The definition of “At Risk” is defined as those that are:

  • suffering serious hardship
  • declines in income
  • increase in expenses
  • facing an interest rate hike
  • having high mortgage debt compared to income
  • owing more than the house is worth
  • demonstrating other reasons for being close to default ie: Extreme Hardship

Both borrowers, servicers and the investors will receive benefits for active participation in the program. Servicers are said to receive $1,000 dollars per modified loan and additional benefits annually for timely payments by the borrower. The timely payments are a result of previous failed efforts of loan modification that have resulted in over half of the modified loans slipping back into default within a year. Investor’s will receive one-time $1,500 incentive for modifying loans that are not yet delinquent and borrowers will receive $1,000 per year in Principal Reduction for timely payments, for up to five years.

There is also a provision for second mortgages to be eliminated but the details of that provision will depend on the cooperation of the second mortgage holders.

The modification program will be in effect until the end of 2012 and is said to help up to 9 million homeowners.

Contact your loan servicer to see how this plan will work for you. Many of the details of the program have been taken from multiple sources of media and listed here for your benefit. I do not have or know the extent of the help further than the explanation above. I stress that each situation will differ so the best source for you will be to contact your servicer for your situation.

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