Obama’s HAMP loan modification plan is officially called as making home affordable plan. This plan is expected to reach nearly 9 million families, so they can modify their loans or refinance and hold on houses during the economic recession. The first basic criteria for refinancing loan are that it should be of a Fannie Mae or Freddie Mac insured loan. Only the loans by these two organizations are eligible for special refinancing modifying under the MHA plan. One must also be the primary residence of the house to modify the loans.

The MHA plan gives the homeowners two separate options, the first one is refinancing and the second one is modifying the loan. Borrowers who haven’t fallen behind the mortgage payments and those who owe below 105% of the principal amount of the loan can take advantage of the making home affordable plan. This is even true if one doesn’t qualify for tradition refinance. It’s vital to know that only those who can stay current on the payments can refinance through the MHA act.

If a person is having difficulty in paying his monthly mortgage payments than modifying the loan by the loan modification plan is the best. People who are current and those who are even behind their mortgage payments can get the loan modified. This is possible as long as one occupies the home and has a monthly payment which exceeds 31% of the monthly gross income.

The government loan modification plan targets the borrowers who are at risk and they adjust the terms of their mortgages, so they pay below 31% of their monthly income. This is called as debt-to-income rate. The first step for the lender is to reduce the interest rate to 2% and then try to meet a 38% DTI. If than the interest rate does not meet the 38% DTI then further modifications of the loan can be done. In the modification, lenders extend the loan up to 40 years and thus they can affordably pay their monthly payments.

After the loan modification companies come to an acceptable modification, the borrowers will have three months on their hand to prove that they can handle the new loan rates. It’s called as trial loan modification period. If they successfully complete the trial loan modification period then they will be fixed for the next five years. This is what the method the MHA plan uses to prevent foreclosure and allow the millions of U.S. families to remain in their homes.