The Obama Administration started the Home Affordable Modification Program to help families battle the foreclosure crisis which is sweeping the nation, mainly caused by the recession and falling home values. The program is created to aid stressed home owners to help avoid foreclosures. Under this program, efforts are made to make a permanent change in the terms of a mortgage loan so as to enable affordable mortgage payment terms for the future.
When you approach a lender for loan modification, he will be concerned with various factors. Firstly, both the lender and the borrower must agree on the terms of the loan. The arrangement is such that the borrower gets to continue staying in his home and the lender can avoid the lengthy and complicated procedure of foreclosures. Some of the factors which the lender will consider while examining a request for loan modification includes the cause or problem that made you delinquent on your mortgage payment (like unemployment, divorce etc.), your ability to make payments, the amount owed and the future status of your finances. On this basis, he will modify your loan and help you avoid foreclosures.
The modified loan should have a thirty year terms of payment that re-amortizes the entire amount of loan. This was done so that the process is streamlined to use only one type of loan and also to enable the lowest amount of monthly payment.
On the other hand, Lenders have rights to self protection during the process of loan modification. Firstly, they can include in the modified loan any previously incurred cost while trying to collect your defaulted mortgage. The Mortgagee is also allowed to conduct a personal inspection of the property to ascertain its present livability condition. Lenders are also allowed to estimate any lien outstanding on the property.
Home owners are bestowed certain rights under the program. Any late fees and charges should be cancelled when a loan is modified. The new interest rate on loan must be made at the current rate in the market which will be advantageous to most home owners as currently market rates are at a record low.
However many borrowers are dropping out of the HAMP initiative due to increasing fears of a spike in foreclosures in the future. HAMP was intended to reduce borrower’s monthly payments; reducing rates to as low as 2% for 5 years and extending loan periods up to 30-40 years. Still many borrowers, deep in all kinds of debt have been disqualified from this program. But according to Obama administration, half of those who are disqualified from HAMP receive alternative modification of their loans via their lenders. Only 7 percent of home owners wind up in foreclosure properties.
