Obama's Refinancing and Loan Modification Programs

It’s no secret by now that our country’s housing market is facing a financial crisis. Home values are at their lowest since The Great Depression and more homeowners are becoming less willing to stay current on their mortgages as their homes’ values drop. For example, would you want to continue to pay off a $500,000 mortgage on a house that’s only worth $250,000? For most people, the answer is no. In the midst of all of this, President Obama is trying to formulate a large scale plan to rescue our country from the financial crisis. The most popular part of his plan is the loan modification program that many homeowners are desperately seeking. Unfortunately, this plan is receiving a lot of mixed reviews by, experts in the financial community . President Obama has also created a refinancing plan. However, the majority of American homeowners do not qualify for the program.

Many Americans have begun to realize that there may be a glimmer of hope in these uncertain times. President Obama’s proactive financial assistance plans are currently being targeted to help the housing industry. By now, almost everyone can agree that the United States housing market is the root of the problem when referring to our weakening economy. Now more than ever, Americans must seek help right away if they are falling behind on their mortgage payments. The refinancing plan seems to be a step in the right direction to assist the millions of homeowners who are paying absorbitant interest rates and can no longer afford to stay in their homes. Unfortunately, not every homeowner in need of assistance will qualify for the plan. If you are looking to get your loan refinancing, your property must be owner-occupied, your loan must be held by Fannie Mae or Freddie Mac, and you need to prove that your income is sufficient to allow to you repay your new loan. You cannot owe more than 105% of your home’s current value on your first mortgage (i.e., If your home is worth $200,000, your first mortgage can’t be more than $210,000). In addition you cannot borrow money from your homes equity during the refinancing and you must apply for the program by June 2010.

The question most frequently asked regarding President Obama’s loan modification program is, Do I Qualify? In order to qualify for the loan modification program:

• The property must be your primary residence.
• The balance of your first mortgage must be equal to or less than $729,750
• You need to prove that a financial hardship is preventing you from paying your mortgage by filling out an "Affidavit of Financial Hardship."Some examples of a financial hardship are job loss, reduction of income, interest rate increases, etc.
• Your mortgage payment- including taxes, insurance, and homeowners association dues- must exceed 31% of your monthly income.
• Your mortgage has to have been made on or before Jan. 1st 2009
• You can only have your loan modified once through the program, which runs to Dec . 31, 2012

While this plan promises to lower consumers’ monthly mortgage payments and even lower their interest rates into something they can afford each month, it doesn’t necessarily lower the borrowers principal balance. This definite flaw in the plan does not address nor help the millions of homeowners who can afford their monthly mortgage payments but do not want to continue making payments on a mortgage that’s double what their homes are worth in many cases. Many people feel that the government needs to create some type of incentive to keep upside homeowners from simply walking away from their homes. If this occurs on a large scale, our country’s housing market will be almost crippled. In the first quarter of 2008, 53% of modified loans went into default within six months of being modified. Fortunately to qualify for Obama’s modification program, homeowners do not need to be behind on their mortgage payments. The government has allocated $75 billion dollars to encourage lenders to participate in the program and to help lower the homeowner’s monthly payments. According to the program lenders must agree to reduce the monthly payments to 38% of the borrower’s monthly income, and after that the lender and government will split the bill to further lower the homeowner’s monthly payment to 31% of their monthly income.

President Obama’s refinance and loan modification plans appear positive and beneficial on the surface, however as you can see many people will not qualify. It is the opinion of some that these two plans were designed to help rescue the lending institutions more than American homeowners. When the banks agree to modify a borrower’s loan, they also receive monetary incentives from the government. Before you agree to any loan modification or refinancing of your loan with any company, make sure you do your research first. Don’t assume that the government’s program is always going to be the best one for you. When you deal directly with your lender, they will always reach an agreement that benefits them most. If your lender seems to be too eager to modify your loan, it could be because they know someone else can get you a loan modification with much better terms. Before you or someone you know rush into any type of loan modification or refinancing plan, contact The CreditLawGroup to speak to a knowledgeable professional who will help you find the best resolution to suit your unique situation.