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While everybody is deciding if Obama deserves the Peace Nobel prize on effort and good intent or not, another achievement is not receiving half as much attention.  This month (October 09) more than 500,000 troubled home loans have joined a trial modification program, the Obama administration announced this Thursday.

Trial loan modifications last around 3 months and are a requisite to qualify for a final loan modification. If the homeowners pay all their mortgage payments on time they qualify for incentive bonuses and the loan modification.

The short term goal was to reach 500,000 by November. The loan modifications must meet certain requirements to qualify for the program. For instance the monthly payments must be reduced to at least 31 percent of the homeowner’s monthly pre-tax income.

Reports show that 16 percent of troubled homeowners, defined as at least 2 months delinquent have qualified for a loan modification.
Even though these figures are promising and Federal officials claim they are on track to meet the long term goal of helping 3 to 4 million borrowers in 3 years it is still early days to claim victory on the credit crisis.

Many experts accuse the program of being a good medicine for the wrong illness. They claim the problem with the American economy is a credit crisis not a mortgage crisis.

The fact the target of loan modifications was reached doesn’t mean it is easy to get one. Among the local success of the loan modification trial program performance among banks varies widely. The government is continuing to name and shame banks that are not fulfilling the expectations set against them. The percentages of eligible loans that are offered a trial modification in the major banks is as follows:

Citigroup: 33 percent
JPMorgan Chase: 27 percent
Wells Fargo : 20 percent
Bank of America: 11 percent.

JPMorgan Chase and Wells Fargo have increased their percentage heavily while Bank of America remains the worst major bank at providing loan modifications.
The main problem with the program that is causing this variety of success rates among banks is that the loan modification program that encourages banks to make the loan modifications happen has no teeth. If the bank decides not to modify loans they should there is nothing specific the government can do. This of course does not promote banks going overboard when trying to meet their loan modifying targets.

Good news for the economy and homeowners is that U.S Treasury Secretary Timothy Geitner is reported as saying that loan modifications are now running at a faster pace than foreclosure sales. This could be one of the first signs that the worst news in the mortgage industry is already behind us and we can start hoping for better things in the mortgage industry. It is still to early to know but you can always hope.

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You know there is something wrong with a system when those that need it don’t qualify. This seems to be the case with the Home Affordable Modification Program. One of the main reasons home owners are turned down is because their loans, by the Home Affordable Modification Program standards, are too affordable.

How is it decided if a loan is too affordable to qualify?

One of the main factors is the percentage of the household income that is dedicated to pay the mortgage. If 31% or more of the household income is set aside for the mortgage and other criteria is also satisfied then the home owners qualifies for the loan modification. However if the percentage of the household income is lower it is too bad.

When this criteria was decided it seemed a reasonable percentage of a household income. It was actually seen as a turn back to old fashioned conservative times when workers where only expected to put one week of their wages toward their housing. Apparently it was in the times of the railway “explosion” that workers were given housing by the railway company in exchange for one week of wages.

However this measure has turned out to be just that, old fashioned. People nowadays don’t only owe money on their homes, also on their cars, their credit cards. In fact credit card debts are right at the top in the catalysts for bankruptcy.

Forbes website reported that William Erbey, chief executive of Ocwen, the second largest U.S subprime mortgage servicer says his borrowers are often saddled with credit card bills and auto loans and will pay those bill before their home loans. William Erbey feels that “ It’s not their mortgage that is out of whack. It’s that their other consumption patterns are out of whack”.

This opinion will ring true for many that have seen how a consumerist culture has moved more and more people to get deeper into debt as a matter of course.
Others criticize the administration and government institutions for being out of touch with reality. Forbes also reported that Chief Executive Sanjiv Das chided policymakers by saying: “This is people solving for a housing crisis not realizing we’re in a credit crisis”.

These comments and the slow start of the Home Affordable Modification Program indicates that it might be the program itself that is ready for modification. A program that worked on the overall debt of a household would provide more practical help than just focusing on one of the debts of this credit crisis. One of the biggest hurdles the government have to overcome is training people to spend sensibly not only provide the cash to pay the debts.

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Loan modifications are complicated products. It does require some understanding about how they work and what options you have when trying to modify them. Two options homeowners have to protect their homes are loan modifications and FHA refinancing.

Contacting a qualified financial advisor is always a great idea if you are struggling to understand what your options really are. Remember however that often free help is better than paid consultants that can financially from decisions you make through commissions and kickbacks.

The Government is investing heavily in public (that means free) counseling offices that provide homeowners with the best options.
Whatever your choice is, it is a good idea to understand as much as you can about loan modifications and FHA refinancing. Understanding the basics of loan modification and refinance before you talk to a qualified consultant will help you make an educated decision based on his advice.

So which is best for you?

A loan modification or an FHA refinance. Which is best for you might very well depend on who insures your loan.
You need to ask your lender or service provider (not always the same) who insures your loan, Freddie Mac, Fannie Mae or the Federal Housing Administration (FHA). These insurers are authorized by congress to insure home loans. This allows banks to provide low interest rates to high risk borrowers which enables borrowers in trouble to still get a fair interest on their mortgage, modify or even refinance their home. If your mortgage is insured by Fannie, Freddie or FHA your lender is pretty much safe and should be happy to modify or refinance your home.

If your mortgage is insured by Freddie or Fannie then you should apply for Making Home Affordable mortgage aid. There is no real difference between the two of them, they are based more on the location of the borrower than any other significant factor.

If you are insured by FHA you are eligible for the Hope for Homeowners plan. These plans allow borrowers that previously did not qualify for loan modification or refinance to now be accepted, so even though you didn’t qualify in the past apply again and you might get a pleasant surprise.
Making Home Affordable loan modification plan is designed to reduce monthly payments and stabilize the expenses of borrowers in trouble until they can get  a hold of their finances. It is very regulated and fine tuned to provide the specific results the administration is looking for. There are some clever incentives both for borrowers and lenders to encourage loan modifications and paying them on time.

If you are insured with FHA you cannot apply for a Making Home Affordable loan modification but there are other options, some of which are more flexible and can adapt better to your personal circumstances.

Visit a government counselor for free and ask for your best options. It is a good idea to check the website of the program you qualify for to be prepared for what paperwork you need.

Most importantly don’t trust your loan modification to a loan modification company without understanding what they are doing and the effects it will have on your home and credit score.

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When is refinancing your mortgage not a good idea?

If you have been watching the financial news you will probably have heard about the millions of people that are trying to get a loan modification that will allow their mortgages to be affordable and save their home from foreclosure and how the Government is bending backwards to make that possible. You will have also heard about the great savings that can be made by re-negotiating your loan at a new interest rate. All this can make loan modifications sound like a win-win deal that just can’t go wrong. Unfortunately that is not true. There are plenty of ways of screwing a loan modification or home mortgage refinance, this article will look into a three reasons that could make your loan mod a bad idea.

1)    You have had your mortgage for too long. If you have been paying your mortgage for a long period of time it might not be a smart idea. Why is that? Because at the beginning of a mortgage you are mostly paying the interest of the entire mortgage and as the years go buy the percentage of the monthly payment that goes to pay the principal of the loan instead of simply paying the interest. To illustrate, in many loans the first five years of a mortgage up to 85% of the monthly payments are used to pay interest while only the 15% goes towards paying off the principal. If you have paid a mortgage for a long time you have already paid most of the interest and if you renegotiate the loan with a modification you will have to start from the beginning again which will mean paying more interest and earning less equity. The ideal mortgages and loans to modify are relatively new mortgages or home loans that had a relatively high interest rate to the current one.

2)    Your prepayment penalty is too high. Banks are clever they don’t want you leaving to the competition the moment interest rates drop so they often build in prepayment penalties in a mortgage. The prepayment penalty also has the effect of generating profit if you decide to pay off the loan early. If you have a high prepayment penalty it could be too expensive for you to modify your loan. The way to go is to ask for a few estimates from different lenders and work out the savings and the cost of paying your mortgage early.

3)    You are planning to move soon. Earning savings from your mortgage modification takes time. It can take up to two to three years to break even with a typical loan modification. If you plan to move home soon you will probably be changing home before you have saved the money you spent on fees and prepayment penalties.

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What Is A Home Loan Modification

Home loan modification, or mortgage modification are words that are heard a lot lately in the media, in the kitchen and in the office. More and more people are having a struggle to pay their home loans and are looking for a way of lowering their monthly mortgage payments. Others have heard that interest rates have dropped (they have, and a lot) and want to know if they can also save on their monthly expenses, nobody likes to pay more than they have to, right?

But when asked what a loan modification is exactly, many are unsure. In fact some rather surprising definitions have come up linking loan modifications with bailouts, foreclosure and other banking terms that although sometimes related are by no means synonyms.
So what is a loan modification? A loan modification is a permanent change to one or more terms in a loan or mortgage contract. Often loan modifications occur when the borrower cannot afford the mortgage payments due to a rise in interest rates or a loss of income. The loan modification allows the loan to be reinstated avoiding foreclosure of the mortgage, which is bad news for both the borrower and the lender. The loan modification makes the loan affordable for the borrower that can continue to pay the home loan.

Of course loan modifications do not only occur when the borrower is in financial difficulties it can also be used as a way of finding a cheaper loan or as a marketing tool by banks who want to attract more customers.

Whether you are looking for a home loan modification because of financial strife or because you want a better mortgage there are three main ways you can modify your loan. These loan modifications are often combined to create a loan modification the lender and borrower can agree on.

Lower interest rates.
This is often the selling point of a new borrower offering to buy your mortgage and sell it back to you at a lower interest rate. This is the best kind of loan modification for a borrower because it lowers your monthly expenses and the overall cost of the mortgage.

Longer loan tenure.
This means that the lender “allows” the borrower to take longer to pay the loan. This can be good for the borrower because it reduces the monthly cost of the loan. However it has the effect of increasing the amount of interest the borrower pays.

Larger loan.
This is a home loan modification banks love. Increasing the home loan can be a great way of paying for other debts and consolidating them in one big loan. This can be a good idea for borrowers that are paying high interest rates for other debts like credit cards or car loans and would prefer to include it in their lower interest mortgage payments.

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What Is A Home Loan Modification

Home loan modification, or mortgage modification are words that are heard a lot lately in the media, in the kitchen and in the office. More and more people are having a struggle to pay their home loans and are looking for a way of lowering their monthly mortgage payments. Others have heard that interest rates have dropped (they have, and a lot) and want to know if they can also save on their monthly expenses, nobody likes to pay more than they have to, right?

But when asked what a loan modification is exactly, many are unsure. In fact some rather surprising definitions have come up linking loan modifications with bailouts, foreclosure and other banking terms that although sometimes related are by no means synonyms.
So what is a loan modification? A loan modification is a permanent change to one or more terms in a loan or mortgage contract. Often loan modifications occur when the borrower cannot afford the mortgage payments due to a rise in interest rates or a loss of income. The loan modification allows the loan to be reinstated avoiding foreclosure of the mortgage, which is bad news for both the borrower and the lender. The loan modification makes the loan affordable for the borrower that can continue to pay the home loan.

Of course loan modifications do not only occur when the borrower is in financial difficulties it can also be used as a way of finding a cheaper loan or as a marketing tool by banks who want to attract more customers.

Whether you are looking for a home loan modification because of financial strife or because you want a better mortgage there are three main ways you can modify your loan. These loan modifications are often combined to create a loan modification the lender and borrower can agree on.

Lower interest rates.
This is often the selling point of a new borrower offering to buy your mortgage and sell it back to you at a lower interest rate. This is the best kind of loan modification for a borrower because it lowers your monthly expenses and the overall cost of the mortgage.

Longer loan tenure.
This means that the lender “allows” the borrower to take longer to pay the loan. This can be good for the borrower because it reduces the monthly cost of the loan. However it has the effect of increasing the amount of interest the borrower pays.

Larger loan.
This is a home loan modification banks love. Increasing the home loan can be a great way of paying for other debts and consolidating them in one big loan. This can be a good idea for borrowers that are paying high interest rates for other debts like credit cards or car loans and would prefer to include it in their lower interest mortgage payments.

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