If you are suddenly out of your job or if your income has recently seen a drop and you’re facing difficulty in making your mortgage monthly payment, you can opt for loan modification.

What is loan modification?

Mortgage loan modification is a program which will allow you to talk to your lender, so that, he will agree to make changes in your loan terms and conditions, according to your repayment affordability. The Obama administration has announced the Home Affordability and Stability Plan (HASP), to render help to nearly 7 million homeowners and save their homes from getting foreclosed.

What documents are needed for loan modification?

You need to provide the lender with some documentary evidence about the financial hardship you are facing, in order to get your loan terms and conditions modified. The documents needed are:

Financial worksheet
Hardship letter
Pay stubs of last 2 months
Past 2 years’ tax returns
Recent and valid driver’s license
3 Recent bank statements
Attorney Retainer Agreement
Property tax statement
Mortgage payment statements

What are the eligibility criteria for Obama loan modification?

To get qualified for the Obama loan modification program, you have to fulfill the following criteria:

The loan must be secured by Freddie Mac or Fannie Mae
The home should be your primary residence
The first mortgage should not have been obtained after 1st January, 2009
The amount you owed on 1st mortgage should not exceed $729,750
You have to furnish documentary evidences, mentioned above, to prove that you are facing financial hardship
Your monthly mortgage payment must be more than 31% of your gross monthly income

According to the Obama Home Affordability Modification Program (HAMP), lenders will be able to help borrowers in three ways. They can lower the interest rate to as 2% or can extend the loan term till 40 years, so that loan payment amount can be reduced. The homeowners, who make their payments on time, will have $1,000 deducted from their principal amount each year for upto 5 years.

Is Obama’s Plan helping everyone?

Though the loan modification program by Obama is helping a lot of borrowers, but, all homeowners cannot take advantage of this plan, as the acceptance of modification requests generally lies on the hands of the lenders.

As the qualifying factors are very stringent, most of the homeowners are confused whether or not they are eligible for this modification plan.

Obama’s Home Affordability and Stability Plan does not cater to the problems of “underwater” homeowners. These homeowners have negative equity on their homes and as they find no sense in investing further on their homes, they just walk away, leaving their homes, without taking the opportunity of loan modification program.