Loan Modifications Only Hope For American Dream

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The Mortgage crisis is hitting families hard all over the country with the devastating effects of a hurricane, destroying homes, affecting household economies and causing general havoc nationwide. As with all natural and human disasters everybody has a view of how to solve the situation. Some say the current crisis is nothing special, a normal depression after a market bubble where people got greedy and invested badly and that if the market is left to itself it will sort things out.
Others are of the opinion that the government must intervene with taxpayer’s money to bail out desperate homeowners and at the same time jump start the economy. Pretty much everyone disagrees on how the government should do this.

What many agree on is the seriousness of the situation. Recently President Obama said that “The American Dream is being tested by a home mortgage crisis that not only threatens the stability of our economy but also the stability of families and neighborhoods.”

One solution the government is investing strongly in is loan modifications. This program provides financial advice and aid to families struggling to pay their monthly mortgage payments. The plan is designed to reduce monthly payments and incentivize regular payments. To enroll in this mortgage plan homeowners must start with a three month trial. If during the three month trial all payments are made on time then they receive a cash bonus that is used to reduce the principal of the loan. After the trial period the government continues to pay an incentive to homeowners that are regular on their payments which can reduce their principal by $5,000 in three years.

This program is offered through Home Affordable Modification Program (HAMP) which is backed by $75 billion to be used to encourage and aid the loan modification program.

What are the results up-to-date?

By now there are 230,000 modifications that have already been started and the goal for November is to reach 270,000. It is interesting to note that in 2008 only 42% of the modifications by the largest servicers lowered homeowner’s monthly payments. However since March 4 with the help of the HAMP program all borrowers that receive a loan modification have seen their monthly payments reduced. This is a nice change, good news among the pages and pages of bad news that inundate our screens. However it is sometimes good to understand a situation well even thought it might be bad news in order to make the best of the bad situation.

Although Loan Modifications are being presented as the be all and end all of the current Mortgage crisis, the truth is that only a small percentage of homeowners in trouble actually qualify for a loan modification. According to the website LoanModExposed.com only 2 percent of homeowners qualify under current parameters.

It is therefore important to understand the qualifications and apply properly because a successful loan modification can reduce the principal balance (the amount you borrow and are paying interest on) reduce the interest rate and change the rate from variable to fixed and many other efficient modifications.