Mortgage Modification Information
As part of the 2009 economic stimulus plan, homeowners were encouraged to pursue mortgage modification in an effort to stem foreclosures. A mortgage modification allowed lenders to lower interest rates, extend the term of the mortgage and in some cases reduce the amount of principle owed in exchange for incentives paid by the U.S. government.
Other People Are Reading
-
What Is Mortgage Modification?
-
Mortgage modification simply means that one or more terms within a mortgage are changed. The intended result was a lower monthly payment and fewer defaults and foreclosures. Homeowners who have fallen behind in their mortgage payments and face foreclosure, and homeowners who can't refinance due to falling home values qualify for modification.
Who Qualifies?
-
Homeowners facing foreclosure due to late payments will need to meet the following criteria to be eligible for mortgage modification: the mortgage must have been signed Jan. 1, 2009, the balance must be less than $729,000, it must be the primary residence, all debts and income must be documented, a financial hardship statement must be signed and the homeowner must attend counseling.
-
Refinancing Option
-
Homeowners wishing to modify in lieu of refinance must meet the following criteria: the home must be the primary residence, the mortgage must be owned by Freddie Mac or Fannie Mae, sufficient income to support the mortgage, and there is no cash out option.
For homeowners who can't refinance with the bank due to being underwater, the government will refinance the loan through Freddie or Fannie.
What Does a Modification Do?
-
For homeowners behind on their payments, the modifications consist of lowering interest rates, extending terms, or reducing principle to lower the monthly payment to 31 percent of the borrower's income.
Drawbacks
-
There are drawbacks to both plans. For homeowners who have their principle amounts reduced, there may be a balloon payment at the end of the loan that they must pay to satisfy the mortgage. And homeowners who refinance through the government will have to meet loan cap guidelines that restrict the mortgage to 105 percent of the home's value. Those homes that have a significant decrease in value will not qualify.
-
