This article will be the first in a series on Loan Modifications. A loan modification is a permanent change in the terms of a mortgage loan or trust deed that allows the loan to be reinstated and creates a monthly mortgage payment that the homeowner can afford. Take the following example from the US Treasury’s website. “Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today’s low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.”
The “Homeowner Affordability and Stability Plan” being promoted by President Obama provides for this type of refinancing as well as:
- New incentives for lenders to modify the terms of sub-prime loans at risk of default and foreclosure;
- Steps to keep mortgage rates low for millions of middle class families looking to secure new mortgages;
- Additional reforms designed to help families stay in their homes.
Many have asked what help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value. Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan.