Home Loan Modifications

Understanding the Obama Administration's Housing Bailout

Part 1 of 2

The Federal Goverment has created a website which details two Loan programs, Loan Modification and Refinance, to assist homeowners in reducing their mortgage interest rates and payments: http://www.makinghomeaffordable.gov/

In this Blog, I will only be discussing Loan Modifications (stay tuned for part 2 of the series)

Agree/Disagree // Love the Plan/Hate the plan - let me know - I welcome and appreciate your comments, thoughts, and opinions

Purpose of the Act:

By restructing distressed mortgages, struggling borrowers will remain in their homes, slow down the foreclosure rate and help insert a floor beneath plummeting property values.

Funding Allocation by the Government:

$75,000,000,000.00 (that's 75 Billion)

Theory behind the Plan:

Struggling borrowers will stay in their homes, even as values decline sharply, as long as their can make their payments.

Who Qualifies? What are the Qualification Terms?:

1. The home must be owner-occupied (single family, mulitfamily, condo, or cooperative)
2. The home must be a primary residence
3. The home may not be investor-owned
4. The home may not be vacant or condemned
5. The borrower must have obtained their current loan before Jan 1, 2009
6. The borrower must have mortgage payments that are greater than 31% of their gross monthly income
7. The mortgage balance must be below $729,750.00 for single family homes or condos
8. The borrower must be able to show a significant financial hardship.

What is the Net Present Value Test?

The Loan servicer will look at the proposed new modified mortgage and determine if it will increase the cash flow of the borrower (i.e. is there a net benefit by the modification)

Note: Check out the Government Website for more detailed information on this Test

What is the 31% Rule?

The Plan requires participating loan servicers to reduce the monthly payments to no more than 31% of the borrower's gross monthly income (with assistance from the Federal Government)

How do they get to this lowered level?

1. Reduce the rate to as low as 2% (if this is not enough - then)
2. Extend the loan terms to up to 40 years (if this is not enough - then)
3. The Servicers would forbear loan principal at NO interest

Note: Current the Plan does not allow for a principal reduction.

Cash Incentives for Servicers/Lender and Borrowers:

1. Servicers will be paid $1000 for each modification; and

2. Servicers will get an additional $1000 payout each year for as many as three years (if the borrower remains current on the modified loan)

3. One-time bonus incentive payments of $1,500 to Lender/Investors and $500 to Servicers if a modification is accomplished while the borrower is still current on their mortgage payments (i.e. not in default)

4. Borrowers will get $1000 knocked off the principal of their loan each year for Five years if they make their payments on time.

Additional Notes:

1. Any foreclosure action will be temporarily suspended during the trial period (3 months), or while borrower are considered for alternative foreclosure prevention options.

2. Bankruptcy proceeds and on going Litigation may not preclude a Borrower from taking advantage of the program.

The content of this post is intended to provided general information only. It should not be used as advice for a specific matter, nor does its publication create an attorney-client relationship. For Legal advice on a specific matter, consult an attorney.

By: Adam W.P. Goncalves, Esq.

Email: adam@dwyer-law.com

Linkedin: www.linkedin.com/pub/7/621/57b

Firm Site: http://www.dwyer-law.com/