In the current state of the economy many people are looking toward loan modification programs in order to prevent their homes from going into foreclosure. While there are both private and government-funded loan modification programs available, there are definitely advantages to choosing the Obama Loan Modification Program (HAMP) instead of a private program. Some of the important and key factors of the government program are discussed in the following paragraphs.
One of the most important features of the Obama Loan Modification Program is the ratio between the mortgage payment and the homeowners’ income. In the beginning phase of loan modification the lender must make sure the payments do not exceed 38 percent of the borrowers’ income even if it means he lender must lower the interest rate as low as two percent in order to reach that requirement. The government then subsidizes the loan so that the final payment will not be more than 31 percent of the borrowers’ income. The lender may also extend the period of the loan to 40 years in order to meet this requirement.
People who face hard times in today’s economy do not want to increase their stress levels by facing foreclosure. It’s difficult enough to try to make ends meet without adding a potential foreclosure to that cup of soup. In addition those who have faced a decrease in their income may have trouble meeting their previous mortgage payments without even thinking about other financial obligations they may have. There are no up front closing costs associated with this program; all closing costs are added into the proceeds of the loan.
Staying current on payments provides an additional incentive for homeowners who are eligible for a reduction in the principal amount of their loan of $1,000 annually for up to five years. In addition lenders and servicers can receive up to $1,000 per year for up to three years for each loan modification borrower who remains current in the payments. This is in addition to the initial $1,000 fee they receive for each loan modification they approve. The Obama Loan Modification Program is not one for which every homeowner will qualify but is a help for many.
On the down side, homeowners must prove they have the ability to repay the new loan and lenders must prove they will increase their cash flow after loan modification. The program is not intended to benefit homeowners who wish to reduce payments on an investment or vacation property but is only for those who are having difficulty meeting their financial obligations on the primary residence. You don’t want to perceive this program as the ultimate answer to your financial obligations; if you do not have the income to justify a new loan you will not be approved. This means you must earn enough so that after all provisions of the program are applied your payments will not exceed 31 percent of your monthly gross income. This is likely to disqualify many people who currently rely on unemployment compensation and are forced to take jobs at a substantially lower rate of pay than they previously earned.