The Federal Government Encourages Home Loan Modification

It's not exactly Economics 101, but it is not that difficult to understand. While the housing market raged like a California wildfire, banks and other credit institutions aggressively marketed and funded risky home loans, counting on the market and the economy's general robustness to help people meet their obligations. When literally millions of families could not make their regular mortgage payments, banks were stock with devalued houses instead of regular paying customers.

Those lower-priced homes earned the title "toxic assets." The more toxic assets a bank has on its books, the less credit worthy it becomes, so that it cannot make new business and housing loans to recoup its losses. A vicious downward spiral develops, and individual homeowners like you either can get caught in the maelstrom, or you can take advantage of federally sponsored home mortgage modification programs to prevent your own home from becoming a toxic asset.

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Naturally, the government and the banks would prefer that you keep your home and continue paying on a reduced mortgage. Therefore, they have tailored qualifications and lending practices to meet the needs of most struggling American families.

How to qualify

To qualify for a federally supported mortgage modification, you must meet four criteria: (1) you must own and occupy a single family home valued at less than $720,000; other occupancy and value standards apply to duplexes, triplexes, and larger multiple-unit dwellings. (2) Whether or not the foreclosure process has begun, you must be at least one month in arrears on your regular mortgage payment; and (3) your regular mortgage payment must exceed more than 31% of your regular gross monthly income. (4) Most importantly, you must have suffered a hardship which has hindered your ability to pay your mortgage.

The question of hardship

Proving that you have suffered a hardship stands out as the most difficult and labor-intensive part of the qualifying process. For the sake of simple discussion, you have suffered a "hardship" if the bank has suddenly and drastically raised the interest rate on your mortgage, or if you have, through no fault of your own, lost a source of substantial income, which increases your home mortgage payment to more than 31% of your monthly gross income. If a husband and wife have depended on both their incomes to meet their monthly expenses and one of them has remained unemployed for some time, they have experienced a hardship. If the primary income earner has suffered a serious accident or catastrophic illness, making it impossible for him or her to work, the family has suffered a hardship. When you can document these events and their effects on your ability to meet your mortgage obligations, you can qualify for federal assistance.

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