Federal Loan Modification Program Law
The federal loan modification and refinancing program, Making Home Affordable, began March 9, 2009 and lasts until December 31, 2012. Making Home Affordable helps homeowners avoid foreclosure by providing them with new mortgage loans offering reasonable monthly payments through the Home Affordable Modification Program. The federal government maintains strict guidelines for both homeowners and lenders participating in the program.
Other People Are Reading
-
Facts
-
According to the official government website for the Making Home Affordable program, participation isn't optional for some lenders. Lenders that hold loans serviced by Fannie Mae or Freddie Mac must offer loan modifications to borrowers who qualify. Foreclosure is not an option for Fannie Mae and Freddie Mac loan servicers unless the borrower requesting a modification does not meet the criteria for mortgage restructuring or has a previous modification under the program and defaults on the new loan.
Considerations
-
Borrowers hoping to obtain a restructured home loan must meet certain criteria before being considered for federal loan modification. The property being modified must be the borrower's primary residence, the outstanding loan amount cannot exceed $729,750 and the borrower must have obtained the mortgage on or prior to January 1, 2009. The Making Home Affordable program differs from standard loan modifications, however, in that borrowers with government-backed loans can obtain a temporary loan modification while unemployed.
-
Time Frame
-
When a lender modifies a consumer's mortgage loan under the Making Home Affordable program, the individual must prove that he is financially capable of making timely payments on the new loan before the modification becomes permanent. Thus, borrowers must undergo a 90 day "trial period" during which their lender requires them to make three on-time mortgage payments. Should a borrower satisfy this requirement, government guidelines state that the lender must convert his temporary loan modification to a permanent one.
Significance
-
Lenders participating in the government's loan modification program must screen every borrower who requests a loan modification to determine her eligibility. Lenders must evaluate a borrower's financial circumstances, whether those financial circumstances have changed since the loan originated and whether the mortgage payments are set to increase to a level the homeowner cannot afford. Although loan modifications are traditionally extended to borrowers after a loan falls into default, if a borrower can prove that she faces a significant financial hardship and default is imminent, the lender may restructure the loan while the consumer is still current on her mortgage payments.
Benefits
-
While the benefits of a loan modification to a homeowner--reduced payments and a lower risk of foreclosure--are common knowledge, many consumers may not realize that lenders benefit from loan modifications as well. Not only is it often much cheaper for a lender to arrange a loan modification than to foreclose on a home, the government offers financial incentives for lenders to modify loans that are in danger of default. A loan servicer can expect to receive $1000 for each successful loan modification and annual payments of $1000 each year that the borrower remains current on his modified mortgage payments for up to three years.
-
References
Resources
- Photo Credit new home for sale image by itsallgood from Fotolia.com
