Government Mortgage Help Programs & Loan Modification Laws
The mortgage meltdown has left millions of people at the doorstep of foreclosure. Whether victims or predatory lenders or guilty of simply not understanding the nuances of complicated loan programs, homeowners across the country have been finding it harder and harder to meet their mortgage payments. This historic crisis has given rise to thousands of loan modification companies who purport to help struggling homeowners and forced the government into action creating the Hope for Homeowners plan. Let's take a closer look at what one needs to do in order to take advantage of the government mortgage help programs.
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Significance
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According to the Chairman of the FDIC, without a significant homeowner aid package from the government, the mortgage meltdown may end up causing between four and five million foreclosures. The Hope for Homeowners plan has been specifically designed and targeted to address the growing wave of foreclosures across the country. The plan also begins to put some structure and direction into the largely unstructured process of loan modification.
Function
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Many homeowners are unsure of how their mortgage can be modified by the Hope for Homeowners plan. According to the plan's guidelines, if you meet the eligibility requirements, your lender must work with you to lower your mortgage payment to no more than 38 percent of your monthly household income. The government will then subsidize another 7 percent reduction, bringing the mortgage payment down to a target of 31 percent of your monthly household income.
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Types
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There are several different kinds of loan modifications. The most common type centers on reducing the rate of the mortgage in question in order to achieve a lower monthly payment. Looking at the Hope for Homeowners plan, for example, a homeowner's rate can be reduced down to 2 percent in order to reach the target 31 percent mortgage payment to monthly income ratio. Another type of modification that is significantly rarer, is the principal reduction. This is where the current value of a home is significantly less than the balance owed on a loan. In this situation, if a homeowner is no longer able to afford their mortgage payments, the bank may consider a principal reduction in order to lower that payment, if they find it cheaper than foreclosing on or short selling the home.
Time Frame
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The average loan modification, whether handled through the Hope for Homeowners plan or independently through a bank, takes between 60 and 90 days. During this time, in most cases the foreclosure process is halted while loan modification eligibility is determined. One quick note: to take advantage of the Hope for Homeowners plan, the mortgage in question must have been originated prior to January 1, 2009.
Warning
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The loan modification industry is by and large a loosely-regulated sector of the the mortgage and real estate industry. Many states do not have specific rules regarding what qualifications a person needs in order to become a loan modification representative. This has led to countless situations where desperate homeowners have been preyed upon by unscrupulous individuals. Any homeowner seeking information about a loan modification should always first visit the HUD website in order to locate their nearest HUD-approved counselor, who will be able to give valuable and free guidance and advice on how to take part in the government's homeowner aid plans. Also, if you choose to use a loan modification company, you should never have to pay for services to be rendered up front.
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