Typically these type of loans have a cap built in to protect borrowers from getting stuck with an unreasonable payment amount however the downward spiraling of home values has pushed the loans to their cap sooner than expected. The cap allows the principal to accrue to a percentage of a homes value, in many cases this is 120%. Due to the current dip in home values the balances on these loans have already reached the max, forcing homeowners to pay the principal & interest payments they weren’t expecting to pay for years – payments which many cannot afford to make.

As we are all too aware job losses are still on the rise and there is no clear sign that the vicious cycle is coming to an end any time soon. As part of the new efforts put forth by the Obama administration new opportunities are available for homeowners who find themselves in this situation. Borrowers who wanted to refinance in the past but could not qualify because their properties have lost value may be able to get a new more affordable rate meaning a lower payment.

There are a few indicators to consider when determining if you are eligible for this type of loan re-modification. First, is your loan held or guaranteed by Fannie Mae or Freddie Mac? Second, is your property a primary residence? Third, is your first loan amount equal to or less than 105% of your current property value? If you can answer yes to all 3 of these indicators then you are one step closer to getting off the track of foreclosure.

Re-negotiating your loan directly with the bank can be a daunting task at best. Imagine how much the bank does NOT want to loose money and then combine that fact with the reality that they are the ones that “set the rules” for what rate they will offer in the re-negotiation. You are clearly the underdog in this match.

Reportedly more and more homeowners contact non-profit loan modification companies after hitting the wall trying to negotiate with banks directly. Contacting a non-profit company to assist with the negotiations has proven to be a benefit to thousands of borrowers to date. The non-profit already has a relationship with the banks and experience re-negotiating loans for struggling homeowners. They know how low the bank can go and what rate other struggling homeowners in similar scenarios have received. Non-profit companies also know the logistics of the new government plans, such as HASP, Making Home Affordable, etc. and finding the right plan for you even if you don’t know what plan you want to utilize, if one is available.

Many of homeowners have questions regarding the President  Barack Obama’s Housing Plan.  A lot of Americans are in various stages of foreclosure and the help can not come soon enough.   So who is eligible?

The program is expected to help those who are in danger of not making their monthly payments.  The applicants do not have to be behind, but may be asked to demonstrate that they may be short on making their monthly payments.  The program’s eligibility is determined by whether the monthly mortgage payment is above 31% of applicant’s gross income.  Jumbo loans (the loans over $417,000) are not eligible and neither are second mortgages.

The lenders and loan servicers are encouraged to participate in the program by receiving subsidies and various incentives from the government but are not otherwise required to participate.  Servicers receive $1000 per loan modification and will continue receiving $1000 each year for three years if the borrower continues being current on the loan.

While the plan which is scheduled to begin on March 4th 2009 is estimated to help 9 million homeowners, there are certain groups that are unfortunately outside of the plan’s reach. Here are the five most important things you Must know about the HASP:

1. Homeowners with conforming mortgages (mortgages under $417,000) may qualify to refinance at a lower rate. Some homeowners may be able to qualify even if they have never been seriously behind on their mortgages.

2. Homeowners with subprime or so-called “exotic” loans may qualify
to modify their current loans to make the payments more affordable.

3. Both of the above groups may be able to qualify even if their property is worth as much as they owe.

4. Homeowners who’s loan amounts are much higher than the value of their property most likely are outside of the scope of the proposed plan. This unfortunately will affect the markets where real estate prices have taken the steepest declines, such as California, Florida, Nevada and Arizona.

5. Homeowners who’s loans were not securitized by Fannie Mae or Freddie Mac may find it difficult to refinance or adjust their rates. Most homeowners may not know or realize that unless they have specifically asked their lenders.