How Government Loan Modification Works


How does a government loan modification work and what are the steps to apply and qualify for assistance. The Treasury Department has set up a stimulus program that aims to lower the mortgage payment for homeowners who are facing financial difficulties and need help to stay in their home. Here are the basics of how the plan works:

Government Loan Modification Requirements:

You must live in the home as your primary residence Loan must have been initiated before 1/1/2009 and be less than $729,750 Current payment must be more than 31% of gross monthly income and you are facing a financial hardship situation

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There is a standard formula mandated by the government that all lenders use to determine if a homeowner is eligible for a loan workout. In addition, there is a standard method used to modify the terms of qualified borrowers.

Government Loan Modification Method of Modification:

Reduce interest rate to as low as 2% Lengthen the loan term to 40 years Either forgive or defer some principal balance to reach the target payment

In order to participate in this program, you will be asked by your lender to submit some paperwork. The loan modification forms that are required are then reviewed and the information provided will be used to determine if the homeowner fits into the standard approval formula. Since a mathematical formula is used to qualify, borrowers can use this same formula to help them check their own budget to make certain that they fit into the guidelines for approval. A software program is available that actually mimics the very same formula used under the government loan modification and does all the calculations automatically. Accurate and acceptable financial statements are critical to approval.

The government plan is funded by stimulus money and is available for a limited time. Interested homeowners need to contact their lenders quickly to take advantage of this assistance. After all, it is paid for by tax payers money and deserving borrowers need this help to avoid foreclosure. Banks are being paid by the government to offer loan workouts, and homeowners will also be paid $1000 annually for successfully maintaining their new payments.


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