Home loan modification details released by Treasury

03.05.09
By Sarah Beldo

Have you been waiting to learn more about how the government is going to help distressed homeowners?

More details about the eligibility requirements for the Obama administration's mortgage modification program were announced by the Treasury on Wednesday.

Government officials estimate the foreclosure avoidance measures included in the Making Home Affordable plan could help up to four million families stay in their homes.

How does it work? Under the program, borrowers are permitted to have their home loans modified only once. Lenders would be able to lower interest rates until they comprise no more than 38 percent of a homeowner's monthly income, and then the government would partially subsidize the rest until the ratio is 31 percent.

The new interest rate could go as low as 2 percent and would last for five years, after which it would be gradually increased every year. Alternatively, lenders can extend the term of the loan for up to 40 years, shift the capital or forgive some of the principal.

Wondering if you are eligible? First of all the home must be your primary residence and may not be investor-owned, vacant or condemned.

Your loan also has to have been made before January 2, 2009 and be worth less than $729,750 for a single-family home.

In order to prove you qualify for the home loan modification program, you have to provide your most recent tax return and two pay stubs.

You also have to fill out an "affidavit of financial hardship," containing the reasons you fell behind on mortgage payments, such as unemployment or a change in financial circumstances.

Those who make their payments on time may also be rewarded with $1,000 in principal reduction payments from the government each year for five years.

The program is open until the end of December 2012.

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The Making Home Affordable plan could help up to four million families stay in their homes.