The Obama administration has given lenders the “Go Ahead” to begin modifying mortgage loans for homeowner’s facing financial hardships.   The Foreclosure Prevention Plan program is designed to ease the downward pressure on home prices, keep qualified people in their homes and prevent more foreclosures.

The Guidelines for Qualifying for this Program are as follows:

Eligiblity and Qualification:

1. Loans must be originated on or before January 1, 2009.
2. $729,750 is the maximum loan balance.
3. The property must be Owner Occupied.  Investor-owned, Vacant and Condemned properties are Excluded.
4. Borrowers must FULLY document income by providing their last 2 paycheck stubs, tax returns, and must sign an affidavit of financial hardship.
5. Owner occupancy status will be verified through credit reports and other documentation.
6. Incentives will be given to lenders who modify loans for risky borrowers, who have not missed payments yet.
7. Loans can be modified only once.

Loan Terms and Procedures:

1. The modified monthly mortgage payment can not exceed 38 percent of the borrower’s gross (Earnings before taxes) monthly income. 
2. Lenders must follow steps to reduce montly payments to 30 percent of gross income.  First, the initial interest rate can be lowered to a floor of 2 percent;  Second, the lender can stretch the loan term to a maximum of 40 years;  Then, principal debt can be forgiven, but only if the lender agree’s to do so.
3. Monthly Payment Calculations must include principal, interest, taxes, insurance, flood insurance and homeowner’s or condo dues.
4. Monthly Income includes wages, salary, overtime, fees, commissions, tips, social security, pensions and other sources of taxable income.

Incentive Payments to Lenders and Borrowers:

1. Lenders will receive $1000 for each loan they modify.  They will also receive $1000 per year on performing modified loans.
2. Homeowners who pay their modified loan on time will receive a yearly $1000 principal reduction for 5 years.
3. The lender receive a one-tine bonus of $1500 on each loan they modifiy for borrowers who are current on their mortgage payments.
4. Similar incentives and bonuses will be paid to Hope for Homeowner refinances.
5. Incentives will be given to lenders who extinguish 2nd mortgages on modified loans.

Accountability and Loan Transparency:  No More Liar Loans

1. Measures to prevent and detect fraud, such as documentation and auditing requirements, are a central point of the program.
2. Lenders are required to collect, maintain and share records for verification and review.  Records include borrower eligibility, underwriting, property verification and other documentation.
3. In some cases, property appraisal will not be required. 

To verify eligibility or check requirements, the goverment has a question and answer website.  Visit Financial Stability to learn more about qualifying.

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