Obama HAMP loan modification plan has come up with fresh plans to restructure at-risk loans and help a whooping four million home holders avoid foreclosure.
The plan rotates around the belief that borrowers stay in the houses until they pay monthly payments. But billionaire investor Warren Buffett believes the foreclosures take place because people are not able to pay their installments. The administrator's plan is to reduce monthly payment for the participating loan servicers not more than 38% of borrower's gross monthly income. The government would further reduce to it to 31% of the monthly income. The servicer would first lessen the interest rate to 2% and if that is not enough then he would come down to 31% and they would even extend the loan period for up to 40%. And after all this if it is still not enough then the servicer would not charge interest on the principal amount.
In order to encourage the participants, the servicers will be paid $1,000 for every loan modification and this is will continue for three years as long as the borrowers keep making the payments. And as for the borrowers, they will get $1,000 deducted if they make timely payments for the next five years on the principal amount. The program is only for people who have $729,750 principal amount outstanding. It is for people who are facing problem due to recession and lay-offs. To enroll you will have to sign an affidavit and verify your income. Since this place is out loan modification companies are ready to modify loans again.
A test will be done to check if a mortgage should be modified or no. It is called net present value test. It compares the anticipated cash flow that the loan would generate and the cash flow if the loan is not regenerated. Many borrowers will be calling their lenders to check if they are eligible for loan modification program. It is not known if the financial institutes have the capacity to handle all the queries of millions of customers.
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