Obama's Home Loan Modification Plan - A Smart And Intelligent Solution?

The ongoing recession has had drastic effects on homeowners in America

. The anxiety of debt is causing people to foreclose their housing loans at a tremendous rate. Foreclosing a house loan immediately reduces the value of surrounding homes by nearly 9 percent. That has a knock on effect dropped home prices means that houseowners increasingly owe more on their house loan than the actual market worth of the house. No one is more aware of this crisis than the Man at the top. President Obama's response to this national crisis is ingenious and timely. His administration has brought forth a home loan modification plan that promises to rescue houseowners in distress.

February of 2009 saw the plan being announced and it was brought into action a month later, in March 2009. Normal refinancing requires that a owner have 20% equity in his home. With the sudden fall in estate prices, many owners have less than this share and are therefore not able to avail of refinance. So one part of the home loan modification plan allows for easier refinancing so that owners can pay their monthly repayment comfortably and escape foreclosure.

More than 5 million house owners will retain their beloved homes through this innovative plan. The administration has laid out clearcut ways and rules to go about modifying their mortgage loans. Mortgage lenders are also motivated by incentives, to facilitate modified loans which reduce the monthly burden on the distressed home owner. It is a win-win situation for both homeowner and mortgage lender!

Owners who avail of this loan modification plan will get the following changes done to their existing house mortgages. The rate of interest on the loan has to be dropped to the extent that the owner does not have to pay more than 38% of his gross montly income as monthly installment on the loan. Mortgage lenders are further motivated to drop interest rates. If that 38% is further lowered to 31%, then lenders are compensated by a matching dollar amount paid up by the Homeowner Stability Initiative. A citizen who has been laid off his job or suffered a paycut can suddenly find his monthly loan payment has shot up to even 50% of his grass monthly income. If this homeowner is to retain his home, he or she has to avail of this excellent rescue measure, the Obama home loan modification plan.

To facilitate the process and avoid confusion, the US Treasury has laid out the exact sequence of steps to be followed by a mortgage lender to modify these distressed loans. The past has also seen measures taken to avoid home loan foreclosure, but this new plan is clearcut in its intent, criteria and procedures, and should definitely go a much longer long way towards alleviating the present housing crisis. Earlier measures included adding the missed installments to the principal amount, but that did not ease the monthly payment burden in any way. The need of the hour is to reduce the monthly loan installment, to make it more affordable to the average homeowner hit by the recession, and that is exactly what President Obama's home loan modification plan is tackling headon!

by: milne

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