The nation has been suffering the largest economic downturn from the time of Great Depression. An increasing number of foreclosures being recorded monthly have reached an alarming figure, with no decline in sight. An entire housing market is under stress to include equity, investments, and pricing. The government attempts, while being inadequately late, had finally materialized into some structured plan to address mortgage issues. Under new Obama regulations homeowners are able to modify their mortgages to avoid foreclosures.
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Government Is Spending Record Amounts To Assist Homeowners
$75 billion has been specifically granted to mortgage lenders to help homeowners in desperate need. Part of the financing is aided to reduce interest rates down to 2% APR for qualified borrowers, ensuring more affordable monthly payments. While real estate prices have taken a serious hit, a depressed housing market is not the only reason for massive foreclosures. Many families, being forced to survive on a reduced income due to massive unemployment and pay cuts, are simply not able to afford mortgage payments. A government had set up a ceiling of 31% of the gross income of the borrower to be spent on mortgage payments.
Loan Modification Is Not For Everybody
Many people have certain misunderstandings of the way loan modification works. First of all, it only covers primary residence of the borrower - multiple properties may not be protected under HAMP. The program does not cover commercial mortgages and investment property loans. It is also not designed to aim secondary liens, although some incentives are available to borrowers. Loan modification works by the means of reduced interest rates leading to lower monthly payments.
HAMP Allows Huge Household Savings
Lenders participating in loan modification program are required to work with borrowers to reduce the monthly mortgage payment to no more than 38% of gross income of the homeowner. The government, in turn, would make necessary arrangements to further reduce monthly payment to 31% of income of the borrower. This is achieved by reducing interest rate to as low as 2%. While some may not treat this as a good deal, in fact it is a great money saver.
Let us take a look at an example. A $250,000 mortgage with 7% interest would typically feature a monthly payment of $1,660. With interest rate reduction to 2% monthly payment would go down to $924. That is a huge difference! While such terms are not permanent and are designed to be in effect for 5 years, they may help many homeowners to get back on their feet and get their finances in order. Even though taxes and insurance are not taken into consideration, reduction of interest rate alone presents a huge benefit to qualifying borrowers. It is important to keep in mind, however, that HAMP is the last resort for struggling homeowners and failure to make payments under loan modification program will most likely result in foreclosure.
Loan Modification Is Easier To Get With Professional Help
Loan modification program is only a part of activities implemented by government to stimulate the economy. There are other programs available for certain borrowers aided to provide more help for homeowners. Contacting a mortgage modification specialist is the best way to establish your eligibility for HAMP and other assistance programs and to apply for benefits. Doing this on your own is not advisable, as program requirements and procedures are rather complex. Missed documents, unsupported statements, and application mistakes may disqualify you from participation, and may force you to face foreclosure.
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