Struggling Homeowners: You May Qualify for a Loan Modification

Homeowners can try to lower their monthly mortgage payments through a loan modification, under Obama’s $75 billion refinance and mortgage modification program.

Now through Dec. 31, 2012, homeowners can apply for a loan modification with lenders under Obama’s $75 billion refinance and mortgage modification program. The Treasury Department says the “Making Home Affordable” program will help up to 9 million homeowners avoid foreclosure.

Lenders will receive financial incentives to modify mortgages of at-risk borrowers who have not yet missed payments and to remove second liens on loans.


  • Loans originated on or before Jan. 1, 2009
  • First-lien loans on owner-occupied properties with unpaid balance up to $729,750. No investor-owned, vacant or condemned properties.
  • Borrowers must show a recent tax return and two pay stubs and sign an affidavit of financial hardship.

The plan sets industry-wide standards for modifying a home loan, including using a “net present value” (NPV) test to determine the benefit of a loan modification. This test includes ways to determine property value, assume home price appreciation and estimate foreclosure costs.

Under the plan, a borrower’s monthly payment must be reduced to no more than 31 percent of gross monthly income.

To do this, the lender must go through a series of steps:
1) reduce the interest rate, at a floor of 2 percent
2) extend the life of the loan for a maximum of 40 years
3) forbear principal (i.e. offer interest-free forbearance on part of the principal)

Check with your lender to see if you qualify.

And don’t forget that borrowers with mortgages held by Fannie Mae and Freddie Mac are also eligible to refinance through June 2010.

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