May 9, 2009As a result of the drop in the property markets, many homeowners have found themselves in a difficult situation. The drop in property values has left many homeowners with properties whose values are way below what they owe in their mortgages. Thus, should these affected homeowners want to sell their properties, they would have to bring cash to the table.
The mortgage problem is at the forefront of the economic concerns that the Obama administration is trying to solve. Early last March, President Obama launched the foreclosure prevention program.
The foreclosure prevention program is aimed at reducing the debt problems that around 4 million U.S. citizens are facing. The $75 million plan approaches the problem in a number of ways. Mortgage investors, loan servicers and borrowers will receive government incentives. Subsidies for interest rate reductions will also be made available.
In return for these incentives, the foreclosure prevention program tasks companies to modify loans to make them more affordable. In particular, the plan aims to change loan rates so that a typical household’s housing payments would amount to at most 31% of its gross monthly income. Those homeowners who have kept up with their payments also get the chance to refinance for lower-cost loans, even in cases where they have minimal or no equity.
During the launch of the foreclosure prevention program, borrowers were already informed to contact their respective loan service companies. However, the companies said that they would need a few weeks before they could actually begin to process applications. Just recently, banks have begun to do just that.
A number of homeowners have started receiving the benefits of President Obama’s foreclosure prevention program. The previous week, Chase Mortgage of JP Morgan Chase issued 15,000 or more mortgage modifications. Bank of America has also released around 100,000 letters to its borrowers and actually began assisting borrowers at risk in April.
For those who are interested in getting their mortgages adjusted, the best solution is to visit the website MakingHomeAffordable.gov. From there, they can take an online quiz to see if they qualify for the program. Eligible borrowers are then given a list of paperwork to prepare. Once the paperwork is ready, they can then contact their loan service company and follow their instructions to apply for debt modifications. Not all loan service companies are participating in the plan, however. Also, borrowers should be able to negotiate with their lenders through the phone and there is usually no need for a face to face meet.
After contacting the lending company, borrowers will have to wait for the company to decide how to help them out. The company can choose to lower the loan’s interest rate, reduce the balance of the debt, or extend the life of the loan. The goal of the lender will be to lower the monthly payment to at least 38% of the borrower’s monthly income. Once 38% is reached, the government will pay the lender in order to bring that figure down to 31%.
With President Obama’s foreclosure prevention plan, many homeowners in danger of losing their homes can breathe easier. With a lowered monthly payment rate, a majority of homeowners should make it through. An important thing to remember, however, is that the loan modifications do not become permanent until the borrower keeps up with the monthly payments for three months consecutively.
On April 3rd, President Obama came out of a meeting with senior economic advisers and said, “what you’re starting to see is glimmers of hope across the economy.” Banks that are now in a better financial position are looking to pay back the bailout loans they received in order to avoid the restrictions that are attached to that money – increases in executive pay, for one, and hefty premiums banks agreed to pay when they first received the bailout funds.