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HOMEstart Explains Obama’s Loan Modification Plan

Introduction. As part of Obama’s 2009 economic recovery package, the President has introduced a plan to rescue and revive the troubled housing market. The new plan is called the Homeowner Affordability and Stability Plan (HASP), which describes Obama’s intents to modify distressed mortgages, keeping struggling borrowers in their homes with the intent to help stop rapidly declining property values resulting from surrounding homes entering foreclosure. Obama is dedicating $75 billion to the HASP and below are some key details.

HASP focuses on reducing mortgage payments since it argues homeowners will continue to stay in their homes, despite declining home values, as long as the borrower is able to afford their monthly mortgage payments during the poor economic climate. Many economists agree that foreclosures result from homeowners simply being unable to afford high monthly mortgage payments versus not being able to pay at all. Obama’s plan requires major lenders and banks to participate in reducing monthly mortgage payments to less than 40% of the borrower’s gross monthly income. The resulting losses lenders and banks incur would be refunded by Obama’s $75 billion HASP budget.

Lenders Involvement. There are a few simple methods lenders use to lower monthly mortgage payments; these include reducing the interest rate to as low as 2% or extend the loan term as high as another 10 years. In Obama’s attempt to incentivize participation, lenders will receive $1,000 for each mortgage modification and can also receive an additional $1,000/year, for up to 3 years, if the borrower makes consistent payments. Borrowers are also eligible to receive a principal balance reduction of up to $1,000 each year, for up to 5 years, granted the borrower makes consistent payments. HASP was originally designed for responsible homeowners who have been seriously affected by the worsening economy and resulting decreasing unemployment, however, with the rate of foreclosures becoming so high, almost any home owner with legitimate financial hardships (ie. divorce or separation, illness, unemployment, reduced pay, etc) can qualify for a mortgage modification.

The major lenders developing government Loan Modification Programs are Wells Fargo, JPMorgan, Bank of America, Countrywide, Citigroup, IndyMac and Washington Mutual. Most of these lenders make up the top 5 mortgage lenders by dollar volume. Whether you are currently behind on your mortgage payments or foresee being unable to make payment in the near future, you can qualify for a mortgage modification.

Loan Modifications. The time to act is now, however, do not rush and make a decision based on pricing from any mortgage modification company. Remember that a turnkey, mortgage modification involves 7 critical phases. The process can generally take up to 3 months, even with a team of experienced mortgage modification specialists working diligently, which is why the time to get started is now.

Even though a loan modification requires several people (ie. intake processors, consultants, negotiators, lawyers, etc.), consider that just one individual working on your loan modification file for 3 months works out to the borrower hiring help for just over the minimum wage rate of California. Do not be fooled by loan modification companies or firms offering low prices because they mostly likely (1) do not have a DRE license, (2) are not accredited by the BBB or (3) do not have the resources and staff to complete a full loan medication (a legitimate contractual agreement between the borrower and lender to modify mortgage loan terms).

Each of the seven phases utilizes the skills and experience of a wide range of professionals to negotiate and create a loan modification agreement for your mortgage loan terms. For the consumer’s protection, the Department of Real Estate (DRE) certifies loan modification companies by providing a license on a per state basis. Along with that license, the Better Business Bureau (BBB) provides an extensive grade, or rating scale, on a multitude of different factors which can help the consumer eliminate any fears of being scammed.

Loan modifications were originally reserved for those whose mortgages became delinquent due to job loss, divorce or illness, but today loan modifications are also open to anyone suffering from high adjustable rate mortgages. It is imperative to begin the loan modification process before your lender gives you a notice of default. Also, one major misconception about who qualifies for a mortgage loan modification is that the borrower must already be behind on their mortgage payments, this is not true.

Your HOMEstart. Many attempt to work with their own lender and come away with no results. This partly results from many lenders having a severe lack of trained and experienced personnel working on loan modifications due to the rising amount of loan modifications being processed each day by any given lender or bank branch. There simply is not enough experienced people to meet the demand of incoming loan modification files. Also consider this process can be difficult in some cases even with professionals and legal staff working diligently for months, so do not hesitate to make another attempt at a home loan modification with a BBB accredited and DRE licensed loan modification company like HOMEstart.

Loan modification companies that provide A+ BBB rated services have established personal relationships with the largest mortgage lenders to expedite the loan modification process. Contact HOMEstart at anytime to discuss your financial hardship, we will listen and maintain the highest level of confidentiality. We have an entire team of experienced loan modification consultants who will help answer any questions you may have, regardless if you pursue a loan modification through HOMEStart. We are here to help; start new, not over.

Mortgage Loan Modification Preparation

The loan modification process begins with consultation with your experienced HOMEstart loan modification specialist. Your loan modification consultant will discuss with you the financial hardships you’re facing and determine if you are a good candidate to receive a mortgage loan modification. After HOMEstart pre-qualifies you for a loan modification, there will be some essential paperwork to get to the loan modification process underway. The loan modification process will require:

* Proof of income.

* Last 4 monthly bank statements.

* Hardship letter discussing your current or future situation.

* All inclusive monthly expense sheet.

* Most recent mortgage statement.

* Past two years of W2 forms and tax returns.

Once the paperwork is complete, your loan modification file enters negotiations. At this time your loan modification file will contain all the information your negotiator needs to create an agreement with your lender to modify your mortgage loan terms. Once an agreement has been made, the loan modification offer enters approval. Your HOMEstart attorney will review the offer made to you by your lender to make sure that it represents the terms previously discussed with your negotiator. Generally each lender will have their own borrower qualification guidelines and so for the best results, consider these factors while getting prepared:

Income-Expense Ratio. The borrower’s proof of income and monthly expense sheet is used to show your lender that smaller monthly mortgage payments will in fact result in consistent payments. Lenders also want to determine if your expenses exceed 60% of the borrower’s gross monthly income.

Nature of Hardship. Some lenders have specific requirements on what types of situations qualify as a financial hardship, however, your financial hardship should be a result of a situation which occurred (or will occur) that was (or is) “out of your hands”. Commonly accepted situations include illness or death in the family, demotion or pay decrease, lawsuits, divorces and military service.

Payment History. Lenders look at the borrower’s previous mortgage statements to see if there were any prior delinquent payments. If the borrower made timely monthly mortgage payments prior to the financial hardship, then it will show the lender your capability to make consistent payments after a mortgage loan modification. Remember that your credit history is not reviewed, simply your mortgage payment history. Those with poor credit can qualify for a mortgage loan modification.

Bank Statements. Lenders look at the borrower’s bank statements to determine if the loan modification applicant had normal spending habits prior to the financial hardship and to see if there is any savings set aside in case of an emergency or worsening situation.

Tax Payments. These documents serve to evaluate the borrower’s level of financial responsibility. Consistent tax returns will demonstrate to your lender that you’re not just looking for “cutbacks”. The borrower’s tax returns also provide additional proof of consistent income.

Foreclosure Information and Timeline

If you are looking for loan modification services, then you are probably looking to save your home by preventing foreclosure. The closer a home owner gets to foreclosure, the more difficult it becomes to get a mortgage loan modification. Knowing the foreclosure process and timeline will help you evaluate your situation and make the best solution for your current or approaching financial hardship.


Collections Stage. This period, ranging from 30-90 days, begins when you miss your first mortgage payment. Generally your bank will try to contact you before taking any severe action. After 2 to 4 weeks from the first missed mortgage payment, your bank will begin to assess late fees. If the second mortgage payment is missed, your lender will send you a breach of contract letter, which formally informs the borrower in writing that they have violated the mortgage loan terms. In addition, after the second delinquent payment, the borrower will be given 30 days to pay the balance or come to a resolution before receiving a Notice of Default.


Notice of Default. At this point, also known as pre-foreclosure, the borrower has missed their third mortgage payment. Pre-foreclosure starts when your lender files a Notice of Default (NOD) at the county office governing your property. Unfortunately for the home owner, technically speaking the foreclosure process begins at this time; only a short 2 months after your first delinquent payment. It takes less than 2 weeks to receive your formal Notice of Default. In California, a 90 day period, known as the Reinstatement Period, is initiated as the time frame the borrower has to resolve the owed balance before a Notice of Sale.

Midpoint. At this time, typically 60 days before the Auction date of the home or property, the borrower’s options for initiating a loan modification get very difficult. Contract terms vary from lender to lender, but the trend is the longer you put off making payments, the less likely your lender will allow you to create an agreement to modify your mortgage loan terms. However, if the borrower does manage to get caught up in payments, the NOD would then be withdrawn.

Notice of Sale. At this point, also known as Pre-Trustee Sale, the owner’s property will have a Notice of Trustee Sale (NOS) publicly posted. The notice remains posted for 3 weeks (21 days) and will contain the time, date and location of the auction. Fortunately, the borrower is able to reinstate the loan upon payment of the balanced owed from delinquent payments 5 days before the auction date.

Trustee Sale. At this time, also known as the Auction date, your home is officially auctioned off to the public. The borrower is given 10 days to remove all property and leave the premises from which thereafter a sheriff will get involved to enforce eviction.