Guidance And Tips For Mortgage Modification Under Obama Rules

Under the Economic Recovery Act of 2009, homeowners who are in financial distress can now modify their mortgage loans to friendlier and easy to handle terms that will allow them to stay afloat financially while still keeping their homes. Under this new legislation, you can modify the terms of your mortgage to receive a lower interest rate and lower monthly payments that will give you the confidence and funding needed to stay in your home.

Mortgage modification has been drafted specifically for those who are threatened with foreclosure or are having a hard time making their monthly mortgage payments and is different from mortgage refinancing that is available under the same legislation (for homeowners who are not behind on their mortgages but cannot refinance because of lowered market values for their homes).

How Does Mortgage Modification Work?

Mortgage modification under the Obama legislation that was passed early in 2009 is available to homeowners who meet the guidelines under the Act. You must have taken out your mortgage prior to January 1, 2009. The home mortgage that you are struggling to pay must be on your primary residence, meaning that vacation homes and other secondary residences do not qualify for modification under this legislation.

The mortgage in question that you wish to modify must be your first mortgage, not a second mortgage or home equity mortgage, as they are often called. You cannot owe more than $729,500 on your home and you must reside in the home in order to qualify for modification under new terms. Your financial situation must be fully documented in your own handwriting and submitted with your application. You must also provide documentation of your pay, including tax returns and paystubs.

For those homeowners who owe more than fifty five percent of their monthly income to debtors for all of their combined debts, the mortgage holder must agree to participate in credit counseling in order to form better habits and money management skills. If you meet these qualifications and are willing to produce the required documentation and submit to the other prerequisites of the program, you can receive a modified mortgage.

Choosing A Mortgage Modification Company and Avoiding Scams

Deciding which bank to go through for your mortgage modification can be difficult. However, most of the banks, lending institutions, and credit unions that are participating in this government sponsored program will offer a similar deal. Typically, the bank absorbs the modification costs, such as title searches and attorneys fees. The bank is reimbursed by the government for these costs. A word of caution to homeowners who are considering modification: there are lenders out there who are scandalous and there are a myriad of scams out there when it comes to this program.

Always goes with a trusted and reputable lender, as opposed to a company that has suddenly sprang up from nowhere when this legislation passed. Most of these modifications are only meant to last for five years in order to make the homeowner pay no more than 31% of their gross income towards their mortgage, which allows them time to catch up and get their finances in order in the new economy. Be suspicious of any lender who offers you a payment amount lower than 31% of your gross income.