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Obama’s Loan Modification Program is a nice idea with good intentions. A superficial look at the program, what it does and how it does it, would make you think it might or even should work. However the reality is different, unfortunately only a very small number of borrowers are benefiting from this program. This article will explain what the Loan Modification Program tries to do, what are the facts and figures of the last year and why the program is not working.

The Loan Modification Program was created by the Obama administration in 2008. The idea was to help out homeowners that were having trouble paying their mortgages to modify their loans to more affordable monthly payments.

The program aimed to reduce the payments by three main methods:

a)      Reducing the interest rate of the mortgages to as low as 3%.

b)      If reducing the interest is not enough then banks could extend the tenure or term of the loan to 40 years.

c)       If that didn’t solve the problem then the lender would be encouraged to reduce the principal amount of the loan.

If you ask me that sounds pretty good, reducing interest rates, lowering the principal of the loan, even extending the tenure of a loan is acceptable if it stops you from losing your home. The idea was also that banks and lenders would benefit from this program because it would be cheaper for them to modify the loan than the alternative, foreclosure. Foreclosures are expensive for lenders and a loan modification that allowed an otherwise delinquent borrower to faithfully pay his mortgage does make sense.

Fewer foreclosures would stabilize communities, stop prices from dropping and save entire neighborhoods from slowly dying.

Unfortunately none of the above is actually working. Or is it? The Loan Modification Program did meet its short term goal of 500,000 trial loan modifications some months ago. That does sound kind of good, right?

However, of the 760,000 borrowers that have currently signed up only 31,000 have qualified for a permanent loan modification.

To illustrate, Bank of America, one of the U.S leading banks has only completed 98 loan modifications from the160,000 that have applied. That success rate is so low you need four decimal points to even see it on a calculator.

Why are things not working? Well for starters, borrowers are not paying their side of the bargain and often don’t make the three month trial payments. Banks also complain that although borrowers apply they do not fill in the necessary paperwork.

Of course the borrowers’ side is rather different, they claim they never speak twice with the same person and they are sent on a goose chase with conflicting and confusing instructions that are changed as the process goes along.

This brings us to the last reason loan modifications are not working, banks. Banks often simply don’t care if loan modifications happen or not because it is not worth their money. The incentives provided by the government are in many cases a joke compared to the losses involved in reducing interest rates and loan principals. Think like a bank. If you play along and help your clients to get a loan modification you might get $4,000 after 3 years. Great news. How does that compare with the tens of thousands of dollars you are going to lose in the long run? Exactly.

Related posts:

1. The Obama Loan Modification Aid Program, What Are The Benefits?
2. When is refinancing your mortgage not a good idea
3. Loan Modification Program Struggles Under Soaring Prime Loans.

Related posts:

1. The Obama Loan Modification Aid Program, What Are The Benefits?
2. When is refinancing your mortgage not a good idea
3. Loan Modification Program Struggles Under Soaring Prime Loans.

Mortgage modifications have received a lot of publicity in the media due and with good reason, millions and millions (4-5 according to government projections) will be left homeless if they don’t make appropriate loan modifications to their mortgages.

However that does not mean that loan modifications are only for the poor and destitute. We can all take advantage of the historic low interest rates and modify our loan or mortgage. Of course this is not an option that will help everyone, in some cases loan modifications cost more than they save and the only benefit they provide is to reduce monthly payments in exchange of a huge increase in interest payments throughout the life of the loan.

How can you can find out if your are eligible for a loan modification that will save you money?

1)   Check the cost.

It doesn’t get much more basic than this but it is vital that we check the price tag before we buy it. To illustrate you might have heard about companies that install solar panels to save money on your electric bill. I actually looked into one of these systems for my home and when you put figures onto paper it would have taken decades to cover the cost of my investment. I happen to believe that solar panels would be a great idea and that all new homes should be forced to have them, but you get my drift, before you “purchase” a product that provides a saving it is wise to work out exactly how much you are saving.

2)    Are you planning to sell soon?

Loan modifications take time to pay off the initial cost of purchasing the mortgage modification, often two to three years. If you are planning to sell soon you might lose money.

3)  Have you had your mortgage for a long time?

Mortgages are set so that at the beginning of the loan you pay most of the interest of the mortgage while paying most of the principal towards the end of the mortgage’s tenure. For example in the first 5 years payments tend to be broken up in 85% to pay for the interest of the mortgage and 15% towards the loan’s principal. If you modify your loan, your outstanding loan will be reset and you will begin to pay mostly interest with your monthly payments again. This could actually reduce your equity and provide little or no benefits. Therefore if you are in the final years of your loan it might be best to stay put.

Loan modifications are generally best suited for people who have recently bought the mortgage, are planning to own the home for a long time and who have excellent credit ratings. Nevertheless it is always a good idea to contact your bank and tell them you are seriously considering refinancing your mortgage, if you are a good customer they are likely to bend backwards to keep you on their portfolio whatever your circumstances are.

Related posts:

1. Mortgage Modifications, Mine Field Or Land Of Milk And Honey
2. Are mortgage modifications cost effective
3. Are Loan Modifications Worth your time

Related posts:

1. Mortgage Modifications, Mine Field Or Land Of Milk And Honey
2. Are mortgage modifications cost effective
3. Are Loan Modifications Worth your time

 The perfect plan for refinancing your mortgage

You have thought about it but never taken the plunge. You have been told it is risky, or maybe you are simply scared of making a financial mistake that could cost you more than you can afford to lose. 
All these are good reasons to think twice about refinancing your mortgage and although this article is by no means selling the idea of refinancing your mortgage it will provide some reasons why refinancing your mortgage can be a good idea.

Let’s start with the basics. What is a mortgage?
A mortgage is a loan where the security is your home. In other words if you don’t pay the loan and the interest on your loan you lose your house which is sold to cover the principal (pending amount) of your loan. What is important here is that all mortgages are the same, the only thing that matters is the interest rate you pay and some basic conditions like what penalty must be paid if you pay back your mortgage early. Apart from those basic conditions it doesn’t matter if you get a loan with the biggest bank in the world or your next door neighbor. What does this mean for you and me?

It means that if you have the opportunity of switching your mortgage with another supplier or with the same supplier at a lower interest rate it is probably a mighty good idea. Unfortunately many people don’t actually understand what refinancing a mortgage actually means. A bank or lending institution that is offering to refinance your mortgage at a lower interest rate is basically offering to buy your house off the bank that holds your mortgage (at least the percentage they own) and sell it back to you for less than you were paying for it before. Why would a bank want to do that? Well they are actually investing in the promise that you will pay your mortgage and are willing to accept a lower rate of return than your old bank or mortgage provider was when you first signed your mortgage. This is often because the going rate of interest has dropped and everyone is willing to invest money for a lower return.

There is however another way of refinancing your mortgage. Some banks or financial institutions will offer to increase the principal on your mortgage or increase the time you have to pay for it while keeping the interest the same or even increase it. This is becoming rather popular recently because people are struggling to pay for their mortgages at the current interest rates.

Lets explain this a little better. There are three main ways or reasons to refinance your mortgage:

1) You need more cash and refinance your mortgage so that your bank or a new bank gives you more cash with your home as security.
2) You want to pay less every month because you are struggling to meet your monthly expenses so you lengthen the tenure (the length in months or years of the mortgage), this reduces your monthly expenses but increases the interest you pay for the money you borrowed and therefore makes your mortgage more expensive although more affordable if you depend on a monthly income.
3) You simply refinance the same mortgage at a lower interest, reducing the cost of the mortgage.

These three types can be combined with each other in a variety of ways. For instance some smart people refinance their mortgage at a lower interest and reduce the tenure of the mortgage. This way they reduce the overall cost of the mortgage while keeping their monthly expenses similar.

What are the risks? This is where the perfect plan comes in.

The risk with refinancing your mortgage is that you will be tempted to borrow more money making your mortgage unaffordable causing you to default on payments and lose your home. The perfect plan is to not borrow more money but reduce the cost of your mortgage by shortening the tenure, lowering your interest or both.  Of course your circumstances might be that you really need the extra cash and that this is the main reason you are looking for a mortgage.
However as far as it is feasible be smart, don’t fall into the trap of ever growing mortgages and take control of your debt.

Related posts:

1. Do’s and don’ts of mortgage refinancing.
2. Mortgage Refinancing For Underwater Borrowers Now Available
3. Home Loan Refinancing Anti-Foreclosure Effort Results Disclosed

Related posts:

1. Do’s and don’ts of mortgage refinancing.
2. Mortgage Refinancing For Underwater Borrowers Now Available
3. Home Loan Refinancing Anti-Foreclosure Effort Results Disclosed

30yrFXD:5.47,15yrFXD:5.2,5yrARM:5.82,1yrARM:5.09