Obama's Home Affordable Loan Modification Program Can Help Millions, If The Lenders Allow It
Now more than ever, loan modification is more attainable than ever for households who can not afford their monthly mortgage payments. This is thanks to Obama's Home Affordable Loan Modification Program, which has set previously unseen easy requirements to qualify for home loan modifications.
Obama's Home Affordable Loan Modification Program hopes to reach out to three or four million American households in need between 2009 and December 31, 2012. The $75 billion plan was written up in response to rapidly decreasing property values and the inability of millions of Americans to afford their mortgage payments due to circumstances hat are beyond their control. Lenders are just as happy to accept the plan as the in-hardship homeowners are. Under the plan, if a lender successfully negotiates a loan modification and the homeowner pays their new lower rate each month, the lender will get $1,000 for 3 years. While the chances of all homeowners paying their new mortgage rates, no matter how small are they, there will always be some who successfully pay each month. At the end of the year, that can be a pretty penny for a lender, especially since loan modification cuts the lender's profits in mortgages because the interest rates are reduced along with the monthly payments.
Under the Home Affordable Loan Modification Program, the modified loan is extended over a five to forty year period, under which the homeowner pays lower monthly mortgage payments, and the total interest is lowered according to the homeowner's financial hardship. The rate the homeowner pays is fixed up until the end of the five year period, where ballooning to make up for the lower payments can occur. The rise at the end of the term does not mean that the overall mortgage has risen over the five years, rather that the lender needs to catch up with how much the homeowner owes.
For homeowners who do not qualify for Obama's Home Affordable Loan Modification Program due to not being in hardship in the eyes of their lender can attempt to get refinancing under the new Home Affordable Refinance program, which is similarly targeted towards four to five million people. However the Refinancing Program is targeted towards the homeowners whose property value is steadily falling. The two programs, the loan modification and refinancing, while milestones in availability, are useful for entirely different scenarios.
Lenders are slowly opening up to accepting loan modification applications under the new loan modification plan, but it is not instant, as entirely expected. Under the new plan for loan modification, lenders must take a financial hit since the interest rates are lowered, and there is no guarantee that every homeowner will pay on time every month, so the $1,000 bonus is not a sure thing. The system will work itself out in time, but for now there is doubt on the lender's side and great need on the homeowner's side.
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