How Does the Government Help? Loan Modification Part 4

How Foreclosure Prevention Works

If you qualify for a federal loan modification, you can choose your own lawn decorations.

So, if you’ve read Part 1 of this series, you know whether you are eligible for the government’s Loan Modification program. If you’ve read Part 2, you know whether  you qualify for Refinancing. Part 3 got you ready to provide proof of hardship.

But mortgage refinancing has been around forever. How is the government’s foreclosure prevention plan any different?

Subsidizing

The federal government has dedicated $75 billion to foreclosure prevention that will specifically go toward Loan Modification and Refinancing. So where does that money go?

The government will use that money to make portions of your mortgage payments for you so you and the bank don’t have to shoulder your personal loan alone.

Interesting interest rates

Under the new program, the end result for the borrower is that their mortgage payments will be  no more than 31 percent of their income.

However, the bank is only required to reduce the mortgage payments to 38 percent of the person’s income. The government will pay the rest, using the $75 billion fund, if you qualify for Loan Modification or Refinancing under the Foreclosure Prevention Plan.

How does the bank reduce my payments?

Under the Foreclosure Prevention Plan, the bank or lender is required to lower the borrower’s interest rate until the payments are lower than 38 percent of their income. However, it doesn’t have to lower the interest rate below 2 percent.

If the bank lowers your interest rate to 2 percent and the payments are still more than 38 percent of your income, the lender can extend the term of your mortgage. Mortgages can be lengthened up to 40  years.

A bad sign

So, what happens if a lower interest rate, government subsidies and a longer mortgage term still don’t bring your  payments low enough? If there is any way to keep you in your home, our loan modification experts will figure it out. Visit this page and fill out the form at the bottom to get in contact with a financial expert to help you through the loan modification process.