LoanCentral's Real Estate Lending Blog

The Treasury Department has announced guidelines for a national loan modification program intended to help 3 to 4 million homeowners stay in their homes. $ 75 BILLION of our taxpayer dollars are budgeted for this in the form of a federal subsidy.

It is a voluntary program which contains financial incentives for loan servicers and lenders. Prior to this, lenders had no incentive to spend resources on a borrower's request for a loan modification. In fact - there was a DIS-Incentive because they were not paid to do the modifications - but WERE paid to do loan foreclosures.

Under the new federal program, lenders will receive a $1,000 fee for doing loan modifications - and bonuses of up to $1,000 per hear for 3 years on modifications that actually work.

QUALIFICATIONS -To QUALIFY for a loan modification, the borrower must have a loan on their PRIMARY residence which was taken out PRIOR TO January 1st, 2009. The loan must be no greater than $729,750 AND they must have suffered a hardship which has caused their housing payments to exceed 31% of the household's gross monthly income. TTotal monthly debts should not exceed 55% of the gross household income. The borrower must also demonstrate that they can actually still afford the new modified loan.

Loan modifications may include short-term reductions in interest rates to as low as 2% to drive down housing payments to the 31% - 38% range. Other tools to bring down payments will be longer amortizations and forbearance or forgivenessof a portion of their principal loan amount.

IMPORTANT if you live in WASHINGTON STATE - there are a number of individuals that are claiming to be loan modification specialists in Washington. Loan Modifications are still in their infancy and as with short sales - borrowers are frustrated by difficulties getting through to lender representatives to help them through their struggles.

In Washington State - you must be LICENSED by the DFI (Department of Financial Institutions) or be a licensed attorney to represent a borrower in loan modifications. Others who are advertising these services for a fee may be violating the statute governing distressed properties and/or be actually charged with practicing law without a license. Be sure you have a qualified individual who is licensed if you need help with a loan modification.