Loan modification rules - Essay Example

April 8, Loan Modification Rules The Great Recession of 2008 has contributed too many workers becoming unemployed and, as a result, many homeowners are having difficulty making their mortgage payments. The Home Affordable Modification Program was implemented by the government in response to the subprime mortgage crisis. Homeowners have an outlet to modify their mortgage payments because of the reduced income from unemployment. Homeowners should understand the Home Affordable Modification Program, the qualifications for the plan, and the process to apply for the plan.

The Home Affordable Modification Program The Home Affordable Modification Program is intended to help as many as 3 to 4 million economically stressed homeowners prevent foreclosure by altering mortgage loan payments that is reasonable (“Home Affordable Modification Program”). The program attempts to alter the mortgage payment to 31% of the homeowner’s monthly income. Reducing the mortgage payment to 31% of pretax income is achieved first by having the interest rate for the mortgage decreased to as low as 2%.

The second step will be to lengthen the term of the loan to 40 years and if the payment still has not reached the targeted threshold, the lender can withhold principal and charge interest on a part of the loan. Qualifications The qualifications to decrease the monthly mortgage payment to 31% of the homeowner’s income are uniform throughout the mortgage industry. The Home Affordable Modification Program offers homeowner’s mortgage payment changes if they are have trouble making mortgage payments because of a hardship.

Hardships under the program include: unexpected lost of earnings, increase in mortgage payments because of an adjustable rate mortgage, a mortgage with a high fixed interest rate, past due on payments, or proof of other signals of risk leading to defaulting on the mortgage (“General Qualifications for a Loan Modification”). The process to apply If a homeowner meets the qualifications to take advantage of the Home Affordable Modification Program, then they need to gather information for the lender to review.

The borrower must submit data on gross monthly income, copies of recent tax returns, data on assets, monthly payments and balances on credit obligations, and a letter showing the reasons for the hardship (“Loan Modification”). Once the borrower has the required documentation, they would communicate with their mortgage lender inquiring about the Home Affordable Modification Program. The lender will conduct their due diligence on the homeowner’s information to determine whether the borrower qualifies under the program and to lower the mortgage payment below the targeted threshold (“Loan Modification”).

Conclusion The economic environment created by the subprime mortgage crisis and the resulting recession of 2008 has produced economic hardships for many homeowners. Homeowners having trouble making their monthly mortgage payments can apply to the Home Affordable Modification Program. The program allows alterations to the borrower’s mortgage payments if they meet industry-wide standards. Once the homeowner gathers the necessary documentation, they can begin the modification process by communicating with the lender.

References "General Qualifications for a Loan Modification with Mortgage Law Center." Modify your Loan Today with Mortgage Law Center. N.p., n.d. Web. 8 Apr. 2011. < http://themortgagelawcenter.com/loanmodqualifications.html> "Home Affordable Modification Program." Making Home Affordable. N.p., n.d. Web. 8 Apr. 2011.