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Obama Loan Modification Program Opens Door to Struggling Homeowners

By Faye Mergel
Published: Wednesday, November 25th, 2009

Homeowners who are about to lose a huge part of their American dream may want to take a look at the federal loan modification program that has been recently offered by the Obama administration. There are only a very few requirements, including a credit report that consumers can get for free from a government-sponsored website.

Obama Loan Modification Program Opens Door to Struggling HomeownersThe modification program helps consumers meet their credit obligations by altering some mortgage terms they have with their creditors. Specialists say the program is much like an ordinary modification plan, only that the government backs the risk for creditors. To qualify, applicants must be spending more than 31 percent of their income on monthly housing expenses; and they must be delinquent or in great risk of defaulting because of a main change in their financial situation.

To qualify for the updated mortgage modification program, consumers must follow a set of difficult rules. Experts note that the federal government has issued several guidelines but Fannie Mae and Freddie Mac have their own very specific guidelines. Lenders are also allowed by the new program to establish their own set of rules as well. Homeowners are advised to talk with their creditor to determine how the modification procedures should go. Industry specialists assure consumers that they will be properly guided so they can do as they have to.

As mentioned above, the two government enterprises have issued their set of guidelines. This includes requiring borrowers to have a missed mortgage payment or being in a great risk for defaulting on their loan. They must also have additional household expenses, significant decrease in income, or other sort of hardship which makes their current payment terms unreasonable.

Homeowners whose mortgage is in foreclosure are also qualified, according to Fannie Mae and Freddie Mac guidelines. Federal law requires the two enterprises to carry the foreclosure on the loans they own or secure. Additionally, bankrupt homeowners may also qualify for modification.

During application, consumers will be required to present documents to prove their hardship or the adverse changes on their financial conditions. The documents must also show their income and expenses.

Fannie Mae and Freddie Mac do not require a minimum credit rating but they require homeowners to present their credit report.

Consumers who want to get their credit report for free from Experian, Equifax, and TransUnion are advised to visit annualcreditreport.com, a government-sponsored site that provides a free credit report to American consumers once a year.

Those who meet the qualifications will be required to sign a home loan modification agreement, a hardship letter, and additional documents to be provided by Fannie Mae and Freddie Mac.

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