The Obama’s Loan Modification Stimulus Plan and the MHA plan

With the ongoing economic recession currently affecting American citizens, President Obama has introduced the Making Home Affordable Plan, or the MHA plan as it’s popularly known as. The objective of the Obama loan modification Programs is to help more than 9 million American homeowners to prevent bankruptcy and avoid foreclosure. The federal government is actively promoting the stimulus package, however the main issue is people aren’t sure about the exact process, or how effectively it’s likely to benefit them.

According to the MHA plan, homeowners can choose from two separate options:

• Refinance the existing mortgage

  The borrower should owe less than 105% of the total principal amount of the loan, and be making regular monthly mortgage payments.

• Modify the mortgage loan

  In case some of the monthly payments are not made, or if the payments have been delayed, the mortgage loan modification would be a better choice, since MHA plan specially caters to this aspect. However, the borrower should own and reside within the house, and be earning a steady monthly income. This option regulates the terms and conditions of the existing mortgage so that the borrower pays less than 32% of the gross monthly earnings. This is the debt-to-income ratio, or the DTI. According to the loan modification process, the lender reduces the rate of interest to meet a DTI of 39%, and if required further reduces the rate of interest to as low as 3% in case the DTI is not met. If the applicant still does not qualify, the lender offers additional leeway in the modification facilities to make the Obama Loan Modification Programs possible. The tenure of the mortgage can be increased to as much as 40 years. Once the 39% DTI is met, and the individual qualifies, the lender and the treasury work out a mutual dollar-per-dollar plan to get the rate down effectively to 31%.

The existing mortgage loan should be owned by Fannie Mae or Freddie Mac, to become eligible for the Home Affordable Refinance program and reduced interest rates. If your loan provider is not Fannie Mae or Freddie Mac, to modify mortgage it’s possible to get an approval or a guarantee for your existing mortgage from Fannie Mae or Freddie Mac to become eligible. To find out who owns the loan, it’s suggested to contact your mortgage company to find out, or alternatively one can directly contact Fannie Mae and Freddie Mac directly, and provide details about your current mortgage loan creditor.