Obama's Loan Modification Program - It Could Be For You!

Obama's loan modification program is now federal law and will be implemented by the Department of Treasury. The goals of the program are first, to keep homeowners who are struggling to meet mortgage payments in their homes, and second, to bolster sagging housing market values. By mandating that participating lenders take specific actions, foreclosures can be avoided, it is estimated, on up to 4 million homes. Reducing the number of foreclosures gives a boost to the housing market, because massive foreclosures have the effect of reducing the value of all homes, whether in foreclosure or not. Major lenders have signed on to participate, including JP Morgan Chase, Wells Fargo, Citimortgage, and others.

The lenders will agree to reduce applicants' mortgage payments to no more than 38% of income. This will be accomplished through direct interest rate reductions, extensions of the terms of the loan, or as needed, to reduce the interest on part of the loan to zero. The government will then subsidize the loan to the lender so that the payment made by the homeowner is reduced to 31% of the borrower's income. In addition to lowering payments for borrowers through lender actions and federal subsidy, cash payments ranging from $500 - $5000 over five years are available to lenders and borrowers who perform according to the terms of the loan

There are advantages to the loan modification process for both the lender and the borrower. The lender increases the chance that the loan will be kept current and will avoid the expense of foreclosure. The borrower will receive a subsidy on a loan he cannot otherwise afford and will be able to continue to pay down the loan on affordable terms. Obama's loan modification program began in April 2009, and it will be some time before the success of the program can be measured. Success will be measured not only by the avoidance of foreclosure, but also by keeping the borrower current on the mortgage over several years.