President Obama’s Foreclosure-Prevention Program Leads to Increases in Mortgage Loan Modifications

July 10, 2009 by Julio
Filed under Foreclosure

There has been an increase in the number of mortgage loan modifications since President Obama’s Foreclosure-Prevention Program came into force. Most of those applied for have still to be processed, but there is a high success rate for those that have gone through the procedure.

Mortgage foreclosures and property repossessions have been rapidly increasing over the past two years, and something had to be done to stop so many Americans being thrown out onto the streets because of a situation they had no part in creating. The causes of the subprime mortgage collapse can be laid at the door of those lenders that invested in people who were obviously going to be a bad risk – and so they proved to be.

Those being repossessed now may have lost their jobs in the recession or had to take temporary or part-time work, or perhaps have even been ill for a while, and unable to meet their repayments during that time. Some also kept their jobs only if they agreed to a wage drop. These are reason that demand understanding, not punishment, yet punished they were, with the result that far too many have lost their homes. That had to stop, and the program is designed to stop it.

In basic terms, what it does is to request lenders to rearrange mortgages through loan modifications that bring an applicants monthly payment down to 38% of their pre-deduction monthly income (gross income), and then the lenders are financed by the government to bring that down to 31%.

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The qualifications for applying to have your mortgage modified in this way is that you must be paying more than 31% of your gross monthly income in repayments, that it must be your primary residence that is involved and that you must have purchased it prior to January 1^st, 2009. You must also owe less than $729,750. If you are currently paying below 38%, but more than 31% of your gross income, then if your application is successful, your repayment will be reduced to 31% without any loan modification being necessary.

So there it is, now how do you apply? You will need a lot of documentation, such as evidence of earnings, tax returns, first and second mortgage details and a great deal more. You also have to provide a severe hardship letter, explaining why you need this type of assistance. The way this is worded can be critical, so you will need some advice on this. It must not indicate any form of self-generated problem or it will almost certainly fail to be approved.

You also have to contact the mortgage lender to find out if they participate in the plan, and although there should be no need to meet face to face, this is not certain, and you should know what to say, even in the event of a telephone interview. The procedure must be followed exactly, but once it starts it will take anything from two or three weeks to two or three months to completion. You will have to sign a new mortgage agreement, and then start making the new repayments.

Do not miss a single one or you could then be repossessed. Not only that, but the arrangements do not become permanent until you have paid your new repayments on time for a three month trial period. If you fail to do that, the new agreement is null and void and you will be unlikely ever again be able to apply for a loan modification. Foreclosure will also be inevitable.

Make sure, therefore, that you can afford 31% of your gross wages. After other deductions that should leave about the same percentage in your pocket, so do the math and make up your mind. If you aren’t sure then seek professional advice. Once you have made your mind up, go ahead but make certain that you understand the whole process, and what documents you need and forms you must fill in.

If you aren’t good at that sort of thing, then get help with that. You have the options of having an advisor take care of the entire process for you, or of getting some form of application pack detailing how to go about it, and providing examples of forms and how they should be completed. The former can be expensive while the templates and written instructions should cost only a few dollars, so it is worth while starting your application that way. Mortgage loan modifications are easier to get under the Foreclosure Prevention Program, but only if you qualify and follow the procedure.

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