Obama pushes loan modifications
Here we go again. More tweeks (as opposed to tweets).
Earlier this month, it was some new short-sale rules. Now, the Obama administration is trying to tweek its loan modification program in hope that more at-risk homeowners will be able to take advantage of the program and avoid foreclosure.
Let’s hope it works. So far, only about 170,000 homeowners have received permanent loan modifications under the program that was launched last year.
The biggest change announced by the administration is aimed at unemployed borrowers. They can receive up to six months of temporary assistance to help cover their mortgage payments.
The assistance is for any amount of the mortgage over 31 percent of the borrower’s income.
Eligible borrowers must live in the home as their primary residence, be receiving unemployment benefits and have a mortgage amount of less than $729,000.
They cannot be more than 90 days delinquent on the loan. The effort is aimed at helping these unemployed borrowers keep their home until they find a job, at which point they may be able to qualify for a loan modification that would permanently reduce their monthly mortgage payments.
The new guidelines would also help borrowers whose properties are under water, that is, worth less than what the owner owes on the mortgage. According to recent statistics, some 15 million homeowners fall into this category.
Under the recently announced effort, these homeowners might be able to be helped in one of two ways.
First, the federal government is encouraging – but not requiring – lenders to reduce the mortgage principal for borrowers with mortgage amounts more than 115 percent of the home’s value. The writedown would occur over three years.
Other borrowers may be able to refinance the home into a Federal Housing Administration/FHA-backed loan, provided that their current lender reduces the loan amount by at least 10 percent.
The hope is that lenders would be willing to take a modest loss in return for unloading a risky loan to the FHA.
There’s nothing mandatory about these measures. As I said, a few tweeks, but certainly worth tweeting your friends.
