mortgage

Can you get an Obama loan modification?

  • The unpaid loan balance must be equal to or less than $729,720 if the property is a detached house or condominium. Freddie Mac has published the following higher limits for multiple-unit properties: two units, $934,200; three units, $1,129,259; and four units, $1,403,400.
  • The loan must have originated before Jan. 1, 2009.

Modified mortgage

  • The borrower's housing costs will be reduced to 31 percent of his or her income in four steps:
    -- The interest rate could be cut as low as 2 percent.
    -- The loan term could be extended to as long as 40 years.
    -- A portion of the loan balance could be deferred.
    -- The loan balance could be reduced, unless the loan is owned or secured by Fannie Mae or Freddie Mac.
  • If a portion of the loan balance is deferred, no interest will be charged on that amount. A balloon payment will be due when the borrower pays off or refinances the loan or sells the home.
  • Unpaid interest, property taxes, insurance premiums and other costs paid by the lender on the borrower's behalf may be added to the loan balance, subject to state law.
  • Unpaid late fees must be waived.
  • The borrower must complete a trial period of three or four months before the loan modification becomes permanent.
  • The interest rate on the borrower's new loan will be fixed for five years. After that, the rate can increase up to 1 percent annually, subject to a cap of the market interest rate on the day the loan was modified.
  • Negative amortization is prohibited.
  • If the borrower has a second loan, the lender may modify or eliminate that loan as part of the first-loan modification process through the Making Home Affordable Second Lien Program.
  • An escrow account for property taxes and insurance is required, subject to state law.
  • Borrowers will not be charges any fees or costs for the loan modification.
  • Borrowers may be offered the Hope for Homeowners program as an alternative. This program reduces the borrower's loan balance so he or she will be able to refinance with a new loan guaranteed by the Federal Housing Administration, or FHA.
  • Borrowers who make payments after loan modification will receive "success incentives" paid by the U.S. Treasury. These incentives accrue monthly and are paid annually. The payments will be applied to the loan balance and could total as much as $5,000 over a five-year period.

Take our quiz to see if you qualify for mortgage modification.

How to apply

Borrowers should contact their loan servicer to find out whether they qualify for a loan modification. A list of loan servicers that have signed formal agreements with the federal government to offer the Home Affordable Modification program is found at the Making Home Affordable Web site.

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