Loan Modification FAQ: Common Questions and Answers on the Making Home Affordable Plan

The President wants to ensure that hard-working homeowners have options open to them in this current recession, so the U.S. has approved a new home loan modification plan. It used to be that people who couldn't pay their mortgages each month were basically doomed. There was little option other than foreclosure, especially if they didn't qualify for refinancing. Since the Making Home Affordable (MHA) plan is so new, there is a lot to learn about it. Read our loan modification FAQ for answers to common questions:

Who Started the Modification Plan?

One of the first actions of the Obama administration was to hash out a loan modification program for U.S. citizens. The plan was announced as a branch of the MHA program in February and became effective in March. From now until 2012, qualifying homeowners can have their loans adjusted to fit their financial needs.

Who Qualifies for a Modified Loan?

To get a loan modification, you must own and occupy the home on which the loan is. No second properties, vacant homes, or investment properties are allowed under the plan. The loan has to be dated before January 1, 2009 and must have less than $729,750 in principal still on it. People seeking a loan modification have to verify current gross monthly income in order to get a modification.

How Does a Loan Modification Work?

Your lender will first evaluate your monthly mortgage payment in light of your gross monthly income. They will calculate the percentage of your income that goes to your mortgage each month. The MHA plan says that homeowners meeting the criteria above can have their loans modified by their lender to get their monthly payment to equal less than 31% of their gross monthly income. When an acceptable new monthly payment is calculated, it stays in place for the next five years.

How is the MHA plan funded?

The MHA plan actually has two initiatives with two different purposes. Each has separate funding. The initiative that goes to loan modifications is called the Homeowner Stability Initiative. $75 billion in tax dollars make up the Homeowner Stability Initiative, which is projected to reach 3 to 4 million homeowners over the next three years.

What About Limitations?

Property investors are out of luck when it comes to getting their mortgage loan modified. Any prospective person for loan modification will have a credit check run on them to verify their primary address. You also need to check who insures your loan, since only loans owned by Fannie Mae and Freddie Mac participate in the program. Each organization has an 800 number you can call to check on your loan.

How Can I Get a Loan Modification?

The first step if you are considering loan modification is to talk to a HUD-approved financial counselor. Many different counselors, all free of charge, will work with you to understand your financial situation and recommend what you should do next.

Lindsy Emery, "Loan Modification FAQ", Home Loan Modification Guide and Resources