Overview on Obama’s Loan Modification Program

Much buzz has been going around regarding Obamas loan modification program. Basically, it addresses the problem of most Americans affected by the recession. With lower salaries, forced holidays and at worst, loss of employment, paying for their homes can be a problem. With Obamas loan modification program though, Americans struggling with the recession now have the chance of maintaining home ownership even if they have little or now equity at all.

Participating loan providers are required to reduce the monthly payments based on the affordability levels of the borrowers which is up to 31 percent on the creditors gross monthly income. To lower the payments, interest rates will be reduced up to 2 percent. The plan also requires the loan providers to extend loan term up to 40 years. If it is still inadequate, payments of loan would require no interest rate on the principal amount but the program does not require loan providers to reduced the principal amount of the mortgage.

The program is voluntary. There are no specific listings of investors and loan provider who will partake in the program. To further enhance program participation,a cash incentive worth $1000 will be given to providers for each modified loan and an additional payout of $1000 each year up to 3 years. Borrowers on the other hand can get up to $1000 mark down on the principal of their loan each year for up to five years if they are able to make their payments on time. The loan incentive program has a big impact on the part of the borrower to keep their loan current.

No payments shall be made if the loan provider has not entered into an agreement with Treasury’s financial agent or neither party can receive the cash incentive until the modified loan payments have been made for least three months. The loan incentives has a big impact on the part of the borrower to keep their loans current.

Not all borrowers are eligible for the program, eligible borrowers would have to be a primary residents with outstanding principal of $729,750 and below. Borrowers must have a solid payment background on an existing mortgage, but wasn’t able to compensate then due to economic crisis.

The program will basically aid those undergoing serious financial crises. Documents to prove their eligibility of the program will be required.

Having these documents, however, will not automatically qualify you for the program. Only loans on or before Jan. 1, 2009 will be considered for the program. Mortgages are subject to modification until December 31, 2012.

To determine if a particular mortgage is eligible for Obamas loan modification program, the net present value test must be performed on each loan. The test compares if the modified loan produce more cash flows than the mortgage loan that was not modified at all. If it shows positive results then the loan is qualified for modification.

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