The U.S. economy is currently facing a severe economic crunch, due to which loan modification has appeared. Nearly six million homeowners are facing home foreclosures, primarily due to the current recession.
As a matter of fact, almost all consumers have had to reduce their spending in all areas. Experts believe that what caused this recession will cause more economic crunches in the future.
The Rescue Plan:
President Obama has designed a well-analyzed and well-organized economic stimulus plan which include loan modification. This plan will produce a great stimulus for the economy if it is applied in an appropriate way to the home market system.
The loan-to-value (LTV) ratios are so high that many homeowners can not take advantage of the historically low interest rates because they don’t qualify for a refinance loan, and the Obama loan modification plan recognizes this.
Before most lenders will consider a loan modification plan, they generally expect the homeowner to owe no more than 80% of the current value of their property, in other words, the majority of lenders require an LTV of 80% or lower.
According to Obama’s Home Mortgage Plan, a person should have access a 30 year fixed rate mortgage with an interest rate of 4.5%. Plus, this plan states that refinancing should be made available to current homeowners at a 4.5% interest rate.
The thing to remember is that loan modification is not a new loan, like refinancing would be. Instead, loan modification is simply a change in the terms of the current loan. In order to have more lender participate, the government is providing incentives to the lender that participate in the loan modification process. It is surprising what some of these incentive are.
Stated below are some of the benefits of Obama’s Loan Modification Plan For Economic Stimulus:
1) It will help people save more money be reducing their interest rate after they qualify for a loan modification.
2) To encourage borrowers to choose this program, the plan is to offer them cash incentives.
3) $1000 is assured for the original loan modification by this programs, and an additional $1000 for three years as well. Of course, this benefits are contingent on the borrower making timely loan payments and not defaulting on the loan.
4. In addition, the program aims to minimize the interest charges and increase the loan term, if the coveted percentage of the total monthly income is not fulfilled.
In order to qualify for this new loan modification plan, you will of course need to meet certain criteria. One critical condition that must be met is that the loan should not date back beyond January 1st 2009, and you must be the prime resident.
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categories: home,debt,loans
