As Obama's Loan Plan is starting to take off, more and more homeowners are encouraged to seek a loan modification in the hopes of saving their homes from foreclosure. However, a loan modification will only work for those who have an income. So it's tough luck for borrowers who lost their jobs. There's no point in getting a loan modified if they can't pay in the immediate future.
In an attempt to address this issue, the Mortgage Bankers Association (MBA) has developed a proposal for a new forbearance program that would allow borrowers to stay in their homes while working out their financial problems.
The forbearance plan states that the lender agrees to postpone the foreclosure while the borrower seeks new employment. The lender reduces the mortgage payment based on an affordable level for up to nine months, after which the difference will be paid off by the borrower or by the foreclosure sale.
For the first 90 days, the borrower can pay 31% of household income until the next phase. In the next 90 days they are assessed according to the Net Present Value. In this phase, the lender evaluates whether it would be viable to continue paying the reduced interest, or foreclose on the home. Assuming that once the borrower is employed during or at the end of nine months, he or she will be re-evaluated for a loan modification under the Administration's Home Affordable Modification program (HAMP).
MBA officials suggest that the Treasury allow lenders access to special loans to pay principal, tax, insurance and interest payments to investors in advance during the forbearance period. The group also proposes that the Treasury and investors would share the loss in value should the forbearance end in a foreclosure. This way, MBA hopes investors would consent to the proposed program.
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