How to take advantage President Obama's $75 billion Loan Modification Plan before it runs out.
According to an US News' article published on March 4, 2009, President Obama has allocated $75 billion to reworking troubled loans. The primary goal of this new plan is to target payments, not asset price. It includes the following benefit if homeowners modify their loans as soon as possible:
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Cap monthly mortgage payment to no more than 38% of the borrower's monthly income. They can accomplish this by:
- Reduce interest rate to as low as 2%.
- Extend the terms of the loan to 40 years.
The Obama's plan targets distressed homeowner due to the housing slump and the worst recession since the Great Depression. Only homeowners who are occupying their home as primary residendence can qualify. In addition, there is a cap of $729,750 on the principal loan amount.
In addition, the mortgage servicer will perform a net present value test where it'll compare the expected cash flow of the modified loan and the expected cash flow if the loan is not modified. If the modified loan will produce more cash flow for the mortgage holder, it is very likely that the loan will get modified.
Last, the Obama administration will offer incentive to cancel second liens such as home equity loans or home equity lines of credit.