Last week, President Obama announced a new program designed to help struggling homeowners, called the Mortgage Modification Plan. The plan will not only give relief to the millions of American homeowners behind on mortgage payments, but will help those who simply owe more on their mortgages than the value of their homes. If this controversial plan works, underwater homeowners will find themselves with a mortgage that reflects the current value of their homes and a mortgage payment they can afford.
The plan also encourages mortgage companies to reduce payments for unemployed homeowners for three to six months while they search for a new job. Mortgage companies are asked to reduce payments to no more than 31% of the monthly unemployment insurance received by the homeowner, and the difference between the original payment and the reduced payment will be tacked onto the loan principle. Mortgage companies are also being asked to write off portions of loans held by people who owe more than 115% of the value of their homes and put more than 31% of their monthly income toward a mortgage payment. A post from earlier this month, “Home Affordable Foreclosure Alternatives,” described a $1,500 relocation assistance sum for homeowners who decide to sell their homes rather than let them go into foreclosure. Under the Mortgage Modification Plan, that amount was increased to $3,000. The plan, however, is simply a plan and not an enforceable law, so lenders are not required to participate.
