The Federal Loan Modification Program Can Help Millions

The recent federal loan modification program put into action by the Obama administration has completely changed the way lenders handle modifications and borrowers who are having trouble paying their mortgage.

Foreclosure has never been a situation that any lender likes to know is near - it's not just borrowers who lose money from foreclosure - but before loan modification really became an option in 2007, there was no other choice for low to middle income families.

In 2009 the economic recession met its peak and one of President Obama's first goals was to help homeowners not only buy homes, but stay in their homes as well. In March 2009 the new federal loan modification program was launched: The Home Affordable Modification Program.

A quick explanation for those who do not know about modifying a mortgage:

When a mortgage is modified, the interest rate is lowered to as low as 2 percent. Additionally, some modification programs offer a deference of the principal. After modified, the mortgage is extended over a 20 to 40 year period to accommodate the lower interest rate. Only homeowners undergoing some form of financial hardship are able to receive a modification on their mortgage.

This is an overly simplified explanation, but even when explained simply the benefits are obvious.

Prior to the federal loan modification program, lenders were pensive to give out modifications as they are a guaranteed loss of money. However; the program encourages lenders by providing incentives to those who are cooperative with their ailing borrowers.

The Obama's program has a total budget of $75 billion dollars to give to lenders across the country. A portion of the $75 billion dollars is provided to lenders only if they are approving modification applications. It is given in a few different ways, the most prominent being through $1,000 per borrower each year who successfully pays their mortgage on time each month. But, as many borrowers who are in financial hardship are not anywhere near the end of their debt troubles, the chances of the lender receiving that $1,000 for every application they approve is low.

While there are some glaring flaws in the federal loan modification program and modifying a mortgage lends little to no assistance to homeowners who have experienced a huge decline in property value, there is no denying that there are huge possibilities for the program.

Overall Obama's federal loan modification program is estimated to help anywhere from 3 to 4 million families across the country, which is more than any housing bill has ever aspired to reach before. Only time will tell the success of the program, though things are looking bright.

Emma Lanier, "Home Loan Modifications", Mortgage Lending Modifications