It used to be a prelude to foreclosure when a homeowner fell behind on the mortgage payment. Lenders had no consistent set of guidelines on what to do when a borrower defaults, so they usually tacked the missed payments plus late fees onto the principal of the loan without reducing the monthly payment. This did nothing to help homeowners, who were unable to make monthly payments as it was. But now the President's Making Home Affordable plan offers a clear, consistent set of loan modification guidelines to follow in the case of a homeowner who can't meet monthly mortgage payments.
The goal is to modify the terms of a loan so that monthly payments are no more than 31% of a person's gross monthly income. When an eligible homeowner is determined to be at risk of falling behind on payments or facing foreclosure, lenders have a clear set of guidelines to follow. This set of guidelines is known as the Standard Waterfall. In the Standard Waterfall, here are the steps lenders will follow:
Banks and other lending institutions not mandated to participate in the plan. This is not true as some people are apt to believe.Since President Obama's MHAP came into effect, homeowners can apply for a loan modification until December 2012 to take advantage of the $75 billion initiatives. Participating lenders must follow certain guidelines for modifying loans and in exchange they receive monetary incentives. In this way, the Administration is trying to encourage lending services that by helping homeowners modify their loans they profit; instead of proceeding with a foreclosure which is an expensive and time consuming process.
Short-term investors such as speculators and house flippers can benefit from the Homeowner Stability Initiative Plan. This is another common misconception. One of the qualifications for MHAP is that the owner must be living in the home as the primary residence for which the mortgage applies. There are ways to validate occupancy status, so no secondary residence, vacant, condemned, or investment property is eligible.
Lenders will get incentive payments for every modified loan that they perform. If they follow the Standard Waterfall outlined above, run a cost analysis, and determine that with the incentive payments they will have a better financial outcome than if they foreclosed on a home, they will modify your loan. After a successful three-month trial period with the new terms, the new interest rate will remain in place for the next five years.
The goal is to modify the terms of a loan so that monthly payments are no more than 31% of a person's gross monthly income. When an eligible homeowner is determined to be at risk of falling behind on payments or facing foreclosure, lenders have a clear set of guidelines to follow. This set of guidelines is known as the Standard Waterfall. In the Standard Waterfall, here are the steps lenders will follow:
Banks and other lending institutions not mandated to participate in the plan. This is not true as some people are apt to believe.Since President Obama's MHAP came into effect, homeowners can apply for a loan modification until December 2012 to take advantage of the $75 billion initiatives. Participating lenders must follow certain guidelines for modifying loans and in exchange they receive monetary incentives. In this way, the Administration is trying to encourage lending services that by helping homeowners modify their loans they profit; instead of proceeding with a foreclosure which is an expensive and time consuming process.
Short-term investors such as speculators and house flippers can benefit from the Homeowner Stability Initiative Plan. This is another common misconception. One of the qualifications for MHAP is that the owner must be living in the home as the primary residence for which the mortgage applies. There are ways to validate occupancy status, so no secondary residence, vacant, condemned, or investment property is eligible.
Lenders will get incentive payments for every modified loan that they perform. If they follow the Standard Waterfall outlined above, run a cost analysis, and determine that with the incentive payments they will have a better financial outcome than if they foreclosed on a home, they will modify your loan. After a successful three-month trial period with the new terms, the new interest rate will remain in place for the next five years.
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