Obama Unveils New Mortgage Modification Plan

Obama announced his much anticipated loan program today that is designed to help individuals that are still living in their homes. This plan is designed for a certain segment of borrower. It’s not really designed for people who are severely underwater in their homes and owe over 110% of it’s value. It’s really intended for people who may owe as much as the entire value of the home, but their mortgage payment has crept up and is now comprising over 40 to 50% of their income.

This new plans allows banks and the federal government to collaborate and try to get the loan payments for borrowers down to about 30% of their income level. There is $75 billion dollars allocated for this program so a lot of homeowners should get the help they need. The program isn’t live until March 4, 2009, but when it goes live there will be some strong incentives for banks and mortgage companies to get out in front of this and start negotiating with borrowers so they can adjust their rates and payments.

Lenders will get incentives that can add up to $1,500 per loan and may include additional payments later on if they are able to keep homeowners in their residence and paying their mortgage. This incentive part of the program is a tremendous first step to putting some actual teeth into the lending habits so that everyone can benefit. Before under the Bush Administration, banks were just given money and weren’t not forced or even better yet incentivized to lend, so not enough of it was happening to have any meaningful effect on the economy.

This might be a plan that can help the American economy turn the corner and maybe get a glimmer of hope that things will get better. Loan modifications are a huge part of the reality of where we’re at as a country. People everywhere are struggling mightily under the burden of too much debt and concessions need to be made by the banks so that we can once again return to the economic prosperity that we all strive for.