Mortgage Modification Guidelines

This was published on March 4, 2009, but to be sure you are not duped into getting false information, the summary as listed below are the official specs of the Housing Recovery and Loan Modifications:

Eligibility requirements for the mortgage modification program include the following:

MODIFICATION ELIGIBILTY

* Borrowers must represent that they do not have sufficient liquid assets to make their monthly mortgage payments. These assets will not include retirement accounts.

* Every borrower who seeks a modification must be screened for financial hardship. Borrowers must demonstrate a change in circumstances that causes hardship, such as a drop in income or an imminent payment increase.

* Delinquency is not a requirement, and households that are at imminent risk of default are eligible.

* Borrowers with high total debt may qualify but only after they enter government-certified debt counseling.

* The mortgage to be modified must have been originated on or before Jan. 1, 2009, and homes must be owner-occupied, 1-4 unit family dwellings that are primary residences.

* Loans must have unpaid principal balance up to $729,750 for a single-family home, $934,200 for a two-unit home, $1.129 million for a three-unit home, and $1.403 million for a four-unit home.

* New applications for the program will be accepted until Dec. 31, 2012. There is no borrower cost to obtain a modification.

* There is no minimum or maximum loan-to-value ratio.

* Borrowers in bankruptcy are not automatically eliminated from consideration for modification, and borrowers in litigation regarding their mortgage can qualify for a modification without waiving their legal rights.

* Foreclosure actions are temporarily suspended while borrowers are considered for foreclosure prevention options. Loans can only be modified once under the program.

* Eligibility for the program will sunset at the end of three years.

INCENTIVES FOR LENDERS, BORROWERS

* The U.S. Treasury will share with lenders and mortgage servicers part of the cost of reducing monthly payments.

* The lender is responsible for reducing payments to 38 percent of the borrower's monthly income through interest-rate reductions or other means. The Treasury will match dollar-for-dollar further reductions that bring payments down to 31 percent of the borrower's monthly income.

* Loan servicers that modify loans according to the program guidelines will receive a $1,000 up-front fee for each modification and a $1,000 annual fee for each still-performing loan.

* Home owners who make modified payments on time will receive a $1,000 reduction in their loan principal each year, up to $5,000.

* Lenders and investors will receive a one-time bonus of $1,500 for each loan modified before borrowers miss any payments. Servicers will receive a $500 bonus on these loans.

* The U.S. Treasury is developing additional incentives to encourage extinguishing second-lien home equity loans to reduce a borrower's overall indebtedness.

* The program sets an interest rate floor of 2 percent on modified loans. The modified rate must remain in place for five years.

* After five years, the rate increases 1 percent per year up to a cap that is intended to reflect market rates at the time the loan was modified.

RELAXED RULES ON FANNIE MAE/FREDDIE MAC REFINANCINGS

* Program targets 4 million to 5 million borrowers with solid payment histories on mortgages owned or guaranteed by Fannie Mae (FNM.N: Quote, Profile, Research) or Freddie Mac (FRE.N: Quote, Profile, Research) that were originated with a loan-to-value ratio of 80 percent or less.

* Lenders can refinance these loans with guarantees by Fannie Mae or Freddie Mac even if the loan-to-value ratio has risen to up to 105 percent. No additional credit enhancement is needed.

* Borrowers are responsible for paying lender fees, points and other closing costs.