In this tough economy, many Americans have fallen behind on their mortgage payments and are at risk of default on the loan.  If you are one these Americans, the government has created two new plans to help you remedy your situation and stay in your home.   The Federal Mortgage Loan Modification Plan is one of these plans.  How do you know if you qualify for this loan modification?  Below are some guidelines of the program that are expected to pass through Congress.

• Your primary, or first, mortgage must not exceed $729,500.
• Your mortgage must have been implemented prior to January 1, 2009.
• You must reside in the property as your primary residence.
• You must provide proof of income with tax returns and pay stubs.
• You must create a financial hardship letter in your own handwriting and sign it.
• You must agree to attend credit counseling if your household debts exceed 55% of your gross income.

• Your lender can lower your monthly mortgage payment so they do not exceed 31% of your gross monthly income.
• Your lender can lower your interest rate to as low as 2%.  Expect an interest rate around 4.5%, however.
• You will not be responsible for any fees associated with the loan modification.  The government will reimburse these fees directly to your lender.
• If your new payments are very low, your lender could institute a balloon payment at the end of the loan.
• Any balloon payment instituted would have to be paid in full in the event of refinancing, selling the property, or paying off the loan in full.
• You will be rewarded for responsible behavior!  As you continually make your payments on time, the government will gradually reduce the principal amount of the loan over 5 years.  The maximum reduction possible is $5,000.
• After 5 years, the interest rate can increase.  Keep in mind this loan modification is not permanent, but intended to help you out of your financial difficulties.
• You are only allowed one loan modification

What about if you have been making your monthly payments on time, however, the value of your home has dropped?  You now owe more than the home is worth and your bank will not work out a loan modification.  Well, the government has addressed this issue as well.  This plan is being called the Refinancing Option of the Federal Mortgage Loan Modification Plan. 

To find out if you may qualify for this program guidelines are listed below:

• You must reside in the property as your primary residence
• Your income must be adequate to support the new mortgage amount
• You cannot receive cash back from the new loan to pay other debts
• Your loan must be owned by Fannie Mae or Freddie Mac
• Your new interest rate will be determined on current market rates and you may be charged additional points or fees
• Your new mortgage will have a fixed rate interest rate at a term of either 15 or 30 years.
• Your bank can lower the interest payments for the first 5 years of the loan

Appraisals are an important factor in this program.  If your home appraises well below the amount of the mortgage you are seeking to obtain, the Refinancing Option of the Federal Mortgage Loan Modification Plan will not work.  The plan allows for new loans up to 105% of the value of the home.  For example, if your home appraises for $200,000, your new mortgage amount cannot exceed $210,000.

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