Federal Government Loan Modification Program Offers Help to Homeowners

Troubled borrowers may be eligible for a loan modification program that offers to change their unaffordable home loan into one that features lower payments. The program, subsidized by the Treasury Department, is targeted to help at-risk homeowners to help them stay in their homes and avoid foreclosure. The plan is called Home Affordable Modification and is funded with $75 billion of stimulus money.

The federal loan modification program promises to quickly move homeowners into long term sustainable mortgages. Not all borrowers will qualify for this loan modification program. Here are the basic guidelines for the streamlined loan workout a borrower must meet:

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Only for principle residences-borrower must live in the home Loan originated before January 1, 2009 Loan amount less than $729,750 Current payment equals more than 31% of gross monthly

The new payment would be targeted to equal just 31% of the household gross monthly income and would be accomplished by one or several of the following options:

Extend loan term to 40 years Reduce the interest rate to as low as 2%-temporarily or permanently Forgive or defer part of the principal balance

The last option, known as principal forbearance or forgiveness, is the lenders last choice and is not offered to every borrower.  The federal government is paying banks 12 cents on the dollar for those loans where principal forgiveness is applied.  Banks are required to analyze each loan and determine if a loan workout or a foreclosure is the most cost effective option for the lender.

The debt ratio requirement of 31% for the new payment offered with this loan modification program is the key factor in determining which borrowers will qualify for help. Homeowners must provide financial statements itemizing income and expenses as well as provide proof of their income for review. Once the lender receives and reviews the information provided by the borrower, a decision will be made to approve or deny the loan modification application.

Most lenders and servicers are offering this federal loan modification program designed primarily to speed up mortgage workouts. For homeowners who are already in foreclosure, more help would be available to find a quick resolution and the foreclosure will be halted during the application process. Troubled homeowners who would like to find out more about their loan modification options can do their own research to gain a better understanding of the loan modification process. Since not everyone will qualify, it is worth the time and effort to find out how to complete the required application paperwork properly to increase the chance of approval. Knowing how to complete the paperwork properly, including presenting acceptable financial statements that meet the debt ratio requirement is very important to obtain an approval. Thousands of homeowners have already gotten help with a loan modification program-you can too.

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