Obama Loan Modification Stimulus Plan

November 18, 2009

The Obama government is offering several incentives to all lenders for loan modification on the existing home loans of the borrowers. This loan modification stimulus plan is expected to help millions of struggling borrowers through modification of loans so that housing payments are not more than 31% of their monthly gross income. As many as 5 million homeowners are expected to take advantage of this. Homeowners can get a lower interest rate and free of foreclosure by getting loan modification stimulus package.


This loan modification plan will offer incentives not only to borrowers but also mortgage investors and servicers. The monthly payments will be affordable for borrowers because of the subsidized interest rate reductions proposed by the Obama government.

According to Housing Secretary Shaun Donovan, “This plan will help make home ownership more affordable for nine million American families and in doing so, help to stop the damaging impact that declining home prices have on all Americans.”

However, there are a section of homebuyers that may not qualify for this assistance. They include those homebuyers that lied on their mortgage documents, bought investment properties or those that got themselves multimillion dollar homes.


Borrowers who wish to find out if they are eligible, can get in touch with their servicers.

People that have serious problems with decrease in their income or increase in expenses, who face an interest hike, who have high mortgage debt that is more than their income are all considered to be at serious risk of default. They will be helped with the loan modification stimulus plan.

Firstly, the interest rates will be reduced so that their total house payments are not more than 38% of their monthly income. This new interest rate will hold good for a period of five years, after which the increase will be 1 percentage point for a year until it reaches the rate that the borrower used to pay originally or the existent mortgage rate at the time of the modification, based on whatever is lower. This way, borrowers will not suffer any payment shock, which is what happened to so many borrowers in the past few years, sending many of them into default.

The idea is to get payments down to 31% of the total income. If the rate reductions are not enough to get them down to that percentage, the term can be extended to a maximum of 40 years, or the principal can be shifted to the end of the loan without any interest.

Borrowers who keep up with the payments without missing any will receive up to $1000 reduction in the principal amount each year, for a five year period.


The key features of this loan modification plan would be the reduced rate of interest and it can go down to 2% only, increase in the tenure of the loan so that the amount that goes into monthly payments is reduced and borrowers will also get a waiver of late fees. With loan modification, lenders will also make sure that the total monthly payments do not increase to more than that of the total monthly gross income.

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Written by Uncle Sam · Filed Under Stimulus 

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