Loan Modification Eligibility

LOAN MODIFICATION ELIGIBILITY

For those in dire straits in the troubled economic times the threat of losing one's home is growing by the day, and for many others it is already too late. Whether trapped in high interest rate mortgages, with an adjustable rate about to skyrocket, or accumulating defaults and possibly doomed to foreclosure, the only thing to save the home of most Washington borrowers is a Loan Modification.

Being aware of your loan modification eligibility is crucial due to the Obama administration's anti-foreclosure program and "Making Home Affordable" plan. Millions of borrowers who are current but having difficulty making their payments, and borrowers who have already missed one or more payments, may be eligible. Homeowners that can no longer afford to make their monthly loan payments may now qualify for a loan modification in order to make their monthly mortgage payment affordable.

If the following guidelines reflect your situation, then you may qualify for savings:

1. Your home is your primary residence.
2. The amount you owe on your first mortgage is equal to or less than $729,750.
3. You are having trouble paying your mortgage, perhaps due to an increase in your mortgage payment or a reduction in your income or a hardship (like medical bills) that has increased your expenses.
4. You received your current mortgage before January 1, 2009.
5. Your payment on your first mortgage (including principal, interest, taxes, insurance and homeowner's association dues, if applicable) is more than 31% of your current gross income.

While not every loan is fixable and a number of homeowners are getting denied, within the new Obama guidelines lenders must now accept applications from all inquiring homeowners, including any homeowner who was previously denied a loan modification. According to the Federal Housing Finance Agency's (FHFA) most recent Foreclosure Prevention Report, Fannie Mae and Freddie Mac modified about 37,000 loans during the first quarter of 2009, a 57% increase over the fourth quarter of 2008.

Under these new regulations, all modified mortgages now must have payments reduced to no more than 31% of the homeowner's gross income. Debt-to-income ratio, or DTI, is now being scrutinized by lenders as an essential qualification in order to determine loan modification eligibility for homeowners and other debt relief. A homeowner's DTI ratio now determines what their house payment will be, assuring them an affordable house payment.

In a shared effort to reduce monthly payments, President Obama's foreclosure prevention plan demands the PITIA (principle, interest, taxes, insurance, and association fees) on a loan modification cannot exceed 31 percent of the household's monthly gross income, based on front-end DTI ratio (house payment only. Since most borrower's loans exceed 31%, the majority of Washington homeowners are now eligible for assistance under new government programs.

According to President Barack Obama, "Under this plan, lenders who participate will be required to reduce those payments to no more than 31 percent of a borrower's income. And this will enable as many as 3 to 4 million homeowners to modify the terms of their mortgages to avoid foreclosure." [White House, 2/18/2009]

By calculating their DTI ratio, homeowner's now have a way of finding out if they qualify for a more affordable monthly house payment. In addition to this assistance, the federal government now guarantees to cover part of the losses if the homeowners re-default. As a result, homeowners in default or in danger of default are now encouraged to explore their options with a well-established and qualified servicer.

As suggested by Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corp., "the government set out a standardized loan modification package for loan servicers to follow, enabling them to do workouts faster. In return for their picking up the pace, the government would guarantee some or all of the newly modified loans." [WA Post, 10/26/2008]

President Obama's "Making Home Affordable" plan has now qualified the majority of Washington homeowners for hundreds in monthly savings with a home loan modification or mortgage refinance. Homeowner now facing foreclosure, or about to be, should immediately begin exploring all the options available to them, including the new government programs designed to help you get a successful loan modify.

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