Obama’s Homeowner Loan Modification Plan

President Barack Obama has launched the ‘Homeowner loan Modification Plan’ is an effort to stem the foreclosures and tide over the mortgage non-payments that has made millions of homeowners unable to make payments. This is supposed help over 4 million homeowners avoid foreclosure.

Loan modification by the service providers

The basic premise of the plan is that the homeowners will actually stay in their homes and make payments to avoid foreclosure even as incentives will be given to them to help them make the mortgage payments. For this purpose, the loan servicers that will be participating in this program will reduce the monthly payments to no less than 38% of the gross monthly income of the borrower.

Further more the government will also lend a helping hand by reducing the mortgage payment to 31% of the homeowners or borrowers monthly income. In doing this the loan providers can reduce the interest rates to as low as 2%. They can also extend the loan for 40 years if the 31% threshold isn’t met. However the plan doesn’t ask the loan providers to reduce the mortgage loan principal.

Cash incentives for both loan providers and borrowers

To make loan providers participate in this program, the government will pay the loan providers $1,000 for each loan modification. In addition they will also get $1,000 per year for three years till the time the homeowner is making regular mortgage payments. It has incentives for the borrowers of the mortgage loan as well. Homeowners can also see a reduction of up to $1,000 per year, for 5 years if they make their mortgage payments on time. For both the loan servicers and the borrowers, the modified mortgage payments need to be made for at least 3 months to receive these cash incentives.

Eligibility for the plan

The plan is meant for actual homeowners that have been caught up in the problem and isn’t for speculators. Those that are owner occupied, primary residences of the borrowers / homeowner that have principal balances (outstanding) of $729,750 are eligible for this loan modification plan.

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