The Home Affordable Modification Program, which aims to stabilize the housing market and help homeowners who are struggling to pay their mortgages, was introduced in February 2009 as part of Obama’s Financial Stability Plan.
The Financial Stability Plan attempts to address the key problems at the heart of the current economic crisis and to get our economy back on track. According to the Making Homes Affordable website, over one million homeowners have received help under the program, and it is on track to offer help to 3 to 4 million homeowners by 2012.
The program, itself, however, is considered by some to be confusing, as there are many moving parts.
There are several sub-programs that homeowners can choose from under this program, all of which aim to help the homeowner stay in their home or transition to more affordable housing, such as the HomeAffordable Foreclosure Alternatives Program.
Let’s take a look at how the loan modification process works within the Making Homes Affordable Program.
A home loan modification is similar to a mortgage refinance except that instead of looking for an entirely new loan, your existing loan is modified. In today’s economic environment, many homeowners are unable to make their mortgage loan payments because of financial hardship.
It’s not necessary to miss your mortgage payments to qualify for the Making Homes Affordable Program, but it certainly doesn’t hurt. The only place where you can get a loan modification is with the lender that services your existing mortgage loan. Each lender, however, has different loan modification programs and processes.
To be eligible, you must have experienced a documented hardship or change in financial circumstances, missed three mortgage payments (90 days delinquent) or more (although this is not always the case), own and occupy the property as a primary residence, and not have filed for bankruptcy. If you pass this initial screening, most often, the lender will then require verification of income levels, tax returns, etc. so that the bank has enough documentation to evaluate the risk in modifying your mortgage.
Once all the paperwork is in order, which can take up to several months, and if the lender wants to move forward, you will generally be asked to make trial payments for several months. The original time frame for trial payments is around three to six months; however, as lenders have been inundated with requests for loan modifications, the trial period has been extended.
If ultimately approved for modification, you will begin making new monthly payments, most often at the same amount at which trial payments were being made.
The homeowner should be certain to understand how the loan modification can impact his/her credit and just how long the entire process takes. The impact to your credit will largely depend on how the lender reports it to the credit bureau; in the short term it could result in a drop in your credit rating, but avoiding a foreclosure will benefit you in the long-run.
Most people that apply for this program are already experiencing some sort of financial difficulty which has caused them to miss mortgage payments, thereby impacting their credit.
Remember, the Obama Home Loan Modification Program is different from other programs such as the Federal Housing Finance Agency Loan Modification Program. Ensure you understand what program and subset of each program works for you. Most important, be patient as the entire process can take months.
Published or updated April 5, 2013.