The nation has been suffering from one of the worst housing slumps, in recorded history. Record numbers of foreclosures are being recorded on a monthly basis. The housing bubble affected the entire housing market, from investing, equity, and pricing. The government has scrambled to put together plans to help keep struggling homeowners from losing their homes. To combat this problem, President Obama has put together an aggressive plan to help homeowners through loan modification.
Seventy-five billion dollars has been set up for mortgage lenders to assist troubled homeowners. Part of this aggressive plan is to reduce qualified homeowners to a low interest rate of 2 %. The idea is that home owners are not in trouble because of deflated prices, but because they are simply unable to make monthly payments. Even billionaire and financial advisor Warren Buffet agreed with this, in a letter to his shareholders. The goal is reached by using a loan modification that would reduce the payment to 31 % of the borrower's gross income.
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To start, people must realize that this modification only applies only to a primary residence. This means that multiple properties cannot be protected under this program. This program would also not cover investment or commercial properties. This program does not address secondary liens, but the government is providing incentives to forgive certain secondary equity loans. The loan modifications work by reducing interest rates, thereby reducing the amount of the monthly payments.
Participating lenders are required to lower the monthly payment to no more than 38 % of a borrower's gross income. The government will then kick in the money to make sure that the monthly payment is no more than 31 % of the borrower's income. The lender will first reduce the interest rates to 2 %. While that may not seem like a great deal, the interest adds up quickly.
Assume that a borrower has a mortgage of $250,000 at a 7 % APR, leaves a monthly payment of approximately $1660. By reducing the interest rate to 2%, the monthly payment becomes $924. This is a huge savings. While this interest rate is not permanent, it is to stay in effect for 5 years, then be re-reviewed. Missed payments during this period can result in default review and removal from the program. For many homeowners, this gives them the chance to save money so they can get their finances in order. While these numbers do not take into account taxes and insurance, the reduction of the interest on the principle should benefit borrowers that qualify.
Using loan modification programs, to reduce the mortgage rates to 2%, is only part of President Obama's aggressive economic policy. Combined with other house saving measures, homeowners may be getting the break they need. These programs are available from most major lenders. People that are having problems making monthly payments should contact mortgage modification specialists. They will be able to guide borrowers through the process of modification. People should not try to do this alone. Missed paperwork or not filling out the correct forms could cost more than just extra money; it could cost them their home.
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