President Barack Obama knows that homeowners in the US are struggling in this current economy. Foreclosures have increased exponentially, and housing prices have decreased dramatically. A foreclosure can negatively affect the value of a neighboring home by as much as 9%. In many cases, this dramatic decrease in home values has resulted in homeowners owing more on their mortgage than the value of the home and making refinancing impossible. President Obama and his administration are seeking to remedy this problem with the mortgage modification stimulus plan.

The mortgage modification stimulus plan was announced in February and rolled out this month. Due to the fact home values are decreasing, many homeowners do not have 20% equity in their homes. 20% equity is the traditional guideline for mortgage refinancing. President Obama’s mortgage modification plan will ease the way for homeowners to refinance their current mortgage into lower monthly payments they can afford and thus avoid foreclosure. This stimulus plan can help over 5 million homeowners refinance their mortgage and keep them from defaulting by providing incentives to mortgage lenders for using new refinancing guidelines and approving home loans. The theory is that mortgage lenders will be more willing to approve refinances given incentives and less risk to them. They will have more flexibility in coming to affordable monthly payments for homeowners.

The goal of the mortgage modification plan is for mortgage lenders to perform mortgage modifications and restructure the loans. Under new guidelines, the new monthly mortgage payment cannot exceed 38% of the homeowner’s gross monthly income. Furthermore, if the lender lowers the monthly payment to 31% of the homeowner’s gross monthly income, the mortgage lender will receive a dollar for dollar government incentive. This stimulus is much needed relief for homeowners who have recently become unemployed and are barely scraping by. Many homeowners use up to 40-50% of their monthly income to pay their mortgage. The modification of up to 20% would increase their savings every month.

The US Treasury has provided exact guidelines for mortgage lenders to adhere to when refinancing or modifying a home mortgage. For example, a common practice has been for lenders to tack on any missed payments to the principal of the loan, which did not reduce the monthly mortgage payment. Under the new guidelines, this would not occur in a refinancing. Obama’s mortgage modification stimulus plan has the potential to save homeowners millions of dollars.

Depending on how a mortgage refinance is structured, it can either cost the homeowner thousands of dollars, or save them thousands of dollars. A savvy homeowner should learn the basic strategies and costs associated with a mortgage modification to come out ahead, and with money in their pocket

How to Receive President Obama’s Mortgage Modification?

To help homeowners qualify we recommend the Complete Do it Yourself Loan Modification Kit

To learn more about the Obama Loan Modification Plan return to this websites homepage.