The Federal loan modification program has come as a much needed shower of rain in a drought.
The federal modification scheme is centered around the assumption that the borrowers will make their utmost possible effort to keep their home from being foreclosed and to bring down the barrier posed by the financial difficulties federal loan modification programs have been introduced.
The federal loan modification program is for a span of five years and is valid till Jan 2012.
This program holds good only for loan secured prior to Jan1'09.
The main features of federal modification program are: Debt to income ratio: The eligible borrowers must have their debt to income ratio no less than 31% and no more than 38% of their gross monthly income.
This is to make sure that the income of the borrower is enough to allow for the payment of mortgage amount after taking care of all the expenses.
The interest rate by the lending institution can be lowered to as nominal as 2% and if even then the borrower does not meet the 31% mark then the term of the loan can be prolonged up to 40 years.
Still if the borrower's debt to income ratio does not meet the 31% mark, the bank can forebear the principal at no interest.
Incentives to the borrower and lending institutions: For every successful home loan modification scheme where the delinquent borrower is able to pay up the modified loan successfully on time for up to three months, the federal government awards $1000 each year to the bank for three years and a deduction of $1000 from the principal to the borrower up to five years.
So, by paying up on time the borrower can have $5000 shaved off from the principal amount.
Financial Hardship: The federal modification program is clearly to extend assistantship to borrowers in need and not for their greed.
Federal loan modification program is not for home loans on a property other than the primary residence.
Any vacant/unoccupied or property for investment purpose does not qualify for federal loan modification program assistance.
The outstanding principal balance should not be more than $729,750 for the borrowers to qualify.
Also the federal loan modification assistance ship is only available once and for first mortgages not for second ones.
The nature and reason of the financial hardship has to be verifiable and documented in order to qualify for the federal modification program.
Net present value test: Prior to extending the federal modification program option to the borrower the lending institution must perform the net present value test.
This is in order to test the expected cash flow that the loan would accrue to the lender as opposed to if the loan is not modified.
If the loan generates a positive cash flow to the lender the lender must "modify" the loan.
When the economic condition of the country is severely damaging the financials of a common man, federal loan modification program comes with lot of promises.
But the concrete results of this program will show only over a period of time.
The federal modification scheme is centered around the assumption that the borrowers will make their utmost possible effort to keep their home from being foreclosed and to bring down the barrier posed by the financial difficulties federal loan modification programs have been introduced.
The federal loan modification program is for a span of five years and is valid till Jan 2012.
This program holds good only for loan secured prior to Jan1'09.
The main features of federal modification program are: Debt to income ratio: The eligible borrowers must have their debt to income ratio no less than 31% and no more than 38% of their gross monthly income.
This is to make sure that the income of the borrower is enough to allow for the payment of mortgage amount after taking care of all the expenses.
The interest rate by the lending institution can be lowered to as nominal as 2% and if even then the borrower does not meet the 31% mark then the term of the loan can be prolonged up to 40 years.
Still if the borrower's debt to income ratio does not meet the 31% mark, the bank can forebear the principal at no interest.
Incentives to the borrower and lending institutions: For every successful home loan modification scheme where the delinquent borrower is able to pay up the modified loan successfully on time for up to three months, the federal government awards $1000 each year to the bank for three years and a deduction of $1000 from the principal to the borrower up to five years.
So, by paying up on time the borrower can have $5000 shaved off from the principal amount.
Financial Hardship: The federal modification program is clearly to extend assistantship to borrowers in need and not for their greed.
Federal loan modification program is not for home loans on a property other than the primary residence.
Any vacant/unoccupied or property for investment purpose does not qualify for federal loan modification program assistance.
The outstanding principal balance should not be more than $729,750 for the borrowers to qualify.
Also the federal loan modification assistance ship is only available once and for first mortgages not for second ones.
The nature and reason of the financial hardship has to be verifiable and documented in order to qualify for the federal modification program.
Net present value test: Prior to extending the federal modification program option to the borrower the lending institution must perform the net present value test.
This is in order to test the expected cash flow that the loan would accrue to the lender as opposed to if the loan is not modified.
If the loan generates a positive cash flow to the lender the lender must "modify" the loan.
When the economic condition of the country is severely damaging the financials of a common man, federal loan modification program comes with lot of promises.
But the concrete results of this program will show only over a period of time.
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