What are the goals and features of the government mortgage programs for modification of terms?


The goal of the government mortgage modification program is to reduce the number of mortgage foreclosures in the country. The government is trying to achieve this goal by assisting the borrowers in making their monthly payments.

The idea is to create a win-win situation for both the lender and the borrower. Borrowers get to stay in the home, and lenders avoid a foreclosure on their books.

Features of the Government Mortgage Program

Following are the features of the government mortgage modification program:

  • The mortgage modification program is only for those home owners who are not current on their payments i.e. are unable to make the required monthly payments to the lender because of income loss or other reasons.
  • Monthly payments are reduced to about 31% of the homeowner's gross monthly income. This is mostly accomplished by decreasing the interest rate on the mortgage.
  • The interest rate will be very low; down to 2%.
  • Monthly payments would remain at this level only for a limited period of time, five years in most cases.
  • No mortgage modification fee would be charged by the lender.
  • After the initial period, the interest rate would gradually increase to the conforming loan rate at the time of modification.
  • Incentives are built into this mortgage modification program for both the borrower and the lender:
    • Borrowers could qualify for a reduction in their principal balance, up to $5,000 over the 5-year modification period; if they make their payments on time.
    • Lenders could qualify for payments by the government, for each of the loans they modify fruitfully.
  • Qualification for the government mortgage modification program requires the unpaid principal of the mortgage (currently owed by the borrower, minus interest) to be less than $729,750.
  • Qualification also requires the house under consideration to be the primary residence of the homeowner. Eligibility for this program will expire in December of 2012.
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