What is a Federal Loan Modification Program?

It’s all over the news and the hot topic of conversation across the nation-President Obama’s stimulus plan to save the American homeowner.  But what is a federal loan modification and can it help your family?  The hype can overshadow the facts, so let’s take a minute to really find out just who qualifies, how the plan works and the benefits to struggling homeowners.

A federal loan modification program called Home Affordable is being offered by most lenders and servicers at the strong urging of President Obama.  He has stated a goal to have every borrower who is facing the possibility of losing their home have the chance to apply and qualify for a loan workout.  To make that process easier and more streamlined, the Treasury Department has set up a standard guideline that all lenders use to determine who qualifies.

Using the federal loan modification guidelines, a borrower is can meet certain criteria will be eligible for:

  1. Reduction in interest rate to as low as 2{421b746ef4f4588dfd87c8acf16c9c4b10a4a0127eaff1927a04f4091b6d6d60}
  2. Longer loan terms-up to 40 years
  3. Principal forgiveness or deferral

These methods will be used in that order to arrive at a new modified mortgage payment that equals just 31{421b746ef4f4588dfd87c8acf16c9c4b10a4a0127eaff1927a04f4091b6d6d60} of the household gross monthly income.  That figure is called a target payment, and that includes your monthly homeowners insurance, property taxes and any homeowners dues.  The idea is to provide a long term solution with an affordable and sustainable modification.

Since the federal loan modification program has standard guidelines for everyone, smart homeowners will take a couple of hours to learn the basics of what it takes to qualify-you can increase your chances of approval by understanding what the bank is looking to see from you, then fine tuning your application so that it fits into the approval criteria.

Now that the federal government has stepped in with billions in stimulus funds, the banks are finally helping needy homeowners.  Help is finally available-you just need to learn how to get it. 

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