Loan Modifications to Help Restructure Existing Loans

From the start of the mortgage crisis and the follow-up credit crisis, the US administration and Treasury have take positive steps to control the situation and put the plug on US banks and financial institutions going kaput. In the latest initiative the US Treasury has committed another US$486 million to make housing affordable in the states of Alabama, Connecticut, Massachusetts, New Hampshire and other states. Beginning March 4, 2009 trial loan modification program will be offered to homeowners.

The program elements for this mortgage modification include guidelines on reduction of monthly payments, Service incentive payments and one time bonus incentives. The administration and Treasury are of the opinion that these new initiatives will spur a growth in loan modifications and stabilize the housing market. However, every servicer who wants to avail of this new program will have to enter into an agreement with the department to avail these new incentives no later than December 31, 2009.

It is important that all stakeholders need to make this program a success. The lenders and investors, borrowers and servicers have taken note of this important program to ensure that the trial run and subsequent acceptance into the Home Affordable Modification program happens seamlessly. In May 2009, there were 300, 000 + foreclosures in the US which shows that it will still be sometime before the US housing markets stabilize. Therefore loan modifications become an integral part of preventing foreclosure. House owners should note that loan modifications are complex calculations and they should approach the right loan modification service agency to check out various options.

Loan modification programs have certain eligibility criteria and borrowers should be aware of them. In the March 2009 program, the mortgage to be modified must have initiated before January 1, 2009. Similarly, new borrowers will be accepted into this program till December 31, 2012. The payment program will continue for a period of 5 years and monitoring will continue till the end of the Program. It is important for borrowers and lenders to understand that the modification program initiated by the Treasury is to help both lenders and borrowers come out of their present crisis. It will help lending institutions from going kaput and it will help individuals to repay their mortgages in a way which is suitable for them. The treasury will bear the cost of financing the program and paying financial institutions the deficit of the mortgage.

While working with the service provider on a Mortgage Modification program, borrowers can capitalize any fees or other charges associated with the program in the new principal amount. This will help them to minimize any fund outflow from their accounts. There are many other charges some of which can be capitalized and some may not be capitalized within the new program. Service providers who offer loan modification programs need to devise the best strategies for the borrower based upon their financial conditions. This will help the individual to get the best deal, the lender to recover the outstanding and fulfill the Governments objective of the entire program.