Obtaining Loan Modification Under Making Home Affordable Program

In order to obtain a loan modification, borrowers must contact their mortgage lender's loss mitigation department. Homeowners who take time to become educated about the loan modification process typically have a higher success rate than those who go in blind.

Borrowers must meet loan modification criteria including debt-to-income ratio and proof of financial hardship. Mortgage lenders will verify income and employment history, along with reviewing credit reports and previous year's tax returns.

If homeowners do not possess copies of filed tax returns, they must provide a 4506 tax form to their lender. The Internal Revenue Service utilizes form 4506-T to provide tax transcripts of previously filed returns. Lenders use this information to determine if borrowers earn sufficient income to obtain a modified loan.

Tax transcripts are quite revealing and are used to verify stated income amounts on the original home loan. If borrowers inflated their income on loan origination they could potentially be charged with mortgage fraud when applying for a loan modification. As long as reported income was truthful, borrowers should have nothing to worry about.

Presently, borrowers are applying for home loan modifications and mortgage refinance through the Making Home Affordable plan. All borrowers needing to modify their home loan can tap into this government sponsored program. Homeowners with Fannie Mae or Freddie Mac loans might qualify for the Making Home Affordable mortgage refinance program.

Borrowers must contact their bank's loss mitigation department to apply for Making Home Affordable loan modifications. Participation in the modified loan / mortgage refinance program is voluntary. Non-participating lenders can advise borrowers of available home loan options.

When mortgage notes are modified, lenders permanently alter the terms of the loan to make payments more affordable. Under Making Home Affordable, lenders are required to reduce mortgage payments to 31-percent or less of borrowers' gross income.

This amount encompasses all facets of the payment including principal, interest, mortgage and homeowner's insurance, and homeowner's association fees, if applicable. The principal sum is not reduced. Instead, mortgage lenders reduce interest rates and can extend mortgage payments up to 40 years.

Both borrowers and lenders that participate in the Making Home Affordable program are eligible for monetary incentives. Mortgage lenders can receive $1000 per year, per modified home loan with a maximum payout of $3000. Borrowers can receive $1000 per year with a maximum payout of $5000. The catch is borrowers must pay mortgage payments on time and in full each month. Just one late payment voids the cash incentive.

Homeowners struggling to pay their monthly home loan payment should be proactive in seeking a loan modification or mortgage refinance. Once a property enters into foreclosure the options available to save the home are greatly reduced.

The Obama administration has pumped billions of dollars into the Financial Stability Act and Making Home Affordable program. These programs are available at no cost to homeowners. Borrowers should beware of solicitations from foreclosure assistance or loan modification companies charging a fee.