FHA Loan Articles

What You Should Know About Obama Loan Modification

Making Home Affordable is the government homeowner bailout program designed to help nine million Americans avoid financial trouble because of the troubled housing market. There are two aspects of Making Home Affordable or the Obama Mortgage. One is refinancing, the other is called loan modification.

Those seeking an Obama mortgage are often not eligible for refinancing; often because they are late on several house payments or otherwise don’t qualify. For these borrowers, the loan modification part of the Obama mortgage plan is a very good way to get back on track financially. But who qualifies for loan modification under this homeowner relief program?


To be eligible for a Making Home Affordable loan modification, applicants must:

• Own AND occupy a one to four unit home


• Have a loan which started before January 1, 2009


• Have an unpaid principal balance equal to or less than $729,750 for a single-unit property

Home owners who don’t occupy the property are not eligible for the loan modification version of an Obama mortgage. It’s also important to completely understand what it means to owe $729,750 as the principal amount. The final cost of your loan could exceed that number, but for purposes of this homeowner relief program, calculate only the amount of the principal—that is, the amount of the loan without interest. It also can refer to the amount of your original loan only, not including any subordinate loans or second mortgages.

If you seek loan modification under the Making Home Affordable homeowner bailout program, you should also know there may be higher limits available if your home is a multi-unit property. If you have a mortgage on a four unit property and you live in the building, your limits could be higher based on HUD guidance for the Obama mortgage program.

There are also two other requirements to be aware of when applying for loan modification under Making Home Affordable:

1. Your mortgage payment must be more than 31% of your current gross monthly income.

2. You must be able to show a major change in your income or your expenses that has affected your ability to pay your current FHA home loan or conventional mortgage.

Your “gross monthly income” is the amount you make before taxes or other deductions. If you take home $2000 a month and make $3000 before taxes and deductions, that higher amount is used to determine your eligibility for loan modification.

Don’t assume you aren’t eligible for loan modification just because you are not currently delinquent on your loan payments or conventional loan payments. The rules of Making Home Affordable state you can apply if you are at risk of default due to a current or pending increase in mortgage payments. If you are current on your payments you may be subject to a screening process, but if you recognize that financial difficulty is on the way because of rising interest rates or mortgage payments, apply for Making Home Affordable as soon as possible. Don’t risk foreclose, default or damage to your credit rating.

FHA and VA loan holders should know that legislation is currently pending to offer the same kind of assistance currently offered to Fannie Mae and Freddie Mac borrowers. Watch this space for further updates on options available to FHA and VA loan holders.

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