Loan Modification
A California home loan modification is when a lender agrees to adjust the terms of the loan granted to a particular homeowner and/or a reduction in principal. Every lender has different guidelines they follow when considering a loan modification program.
A Loan Modification plan that the FDIC has put forth to save homeowners
In Washington, the federal agency that insures most American's bank deposits put forth a plan to help prevent 1.6 million home loan foreclosures by promising to share losses with home loan lenders that agree to re-structure certain mortgages. The FDIC said the plan would cost the U.S. taxpayer $25 billion which would be covered by the $700 billion bailout program for the banking industry. Most of the first $350 billion of the TARP (Troubled Asset Relief Program) has been injected as capital into banks. The FDIC put the loan modification program on its website Friday morning (http://www.fdic.gov/consumers/loans/loanmod/index.html).
The chairwoman, Sheila Bair, has spent weeks unsuccessfully lobbying President Bush and his key staff members on her foreclosure prevention plan however the Bush administration is not "warm" to the loan modification plan put forth by the FDIC. Treasury Secretary Hank Paulson said:
"That (foreclosure plan) is a subsidy, or spending, program. The TARP was investment, not spending."
The FDIC responded to critics with the following: "Although foreclosures are costly to lenders, borrowers and communities, the pace of loan modifications continues to be extremely slow," the FDIC said. "It is imperative to provide incentives to achieve a sufficient scale in loan modifications to stem the reductions in housing prices and rising foreclosures."
Per the FDIC: 1. About 2.2 million mortgage loans by offering financial incentives to mortgage servicers. It would pay servicers $1,000 to cover expenses for each loan modified to the required standards, and would promise to share up to 50 percent of losses incurred if a modified loan defaults. 2. Eligible borrowers would include those who have missed at least two monthly payments on loans for homes they live in. 3. Servicers would be expected to lower those borrowers' monthly payments to about 31 percent of the borrowers' monthly income.
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