How does it work?  The Plan works by reducing your monthly mortgage payment (including principal, interest, monthly property tax and homeowner’s insurance escrow, and condo assessments) on your 1^st mortgage to 31% of your household’s gross monthly income.  If you are approved, you will be placed on a 3-month trial plan.  If you make each payment on time, the modification will be extended for 5 years.   At the end of the 5 years, your interest rate can go up 1% per year until it reaches the market rate at the time you got the modification.   A few other terms apply:

1)                  Your taxes and insurance will be escrowed;

2)                  Accrued interest and lender expenses (attorney fees, etc.) will be added to your outstanding principal balance, all late fees will be waived;

3)                  There are no lender fees for getting the modification;

4)                  Pending foreclosures must be postponed during the evaluation and trial period; and

5)                  If, after the modification, your mortgage payment and other credit report debt exceed 55% of your gross monthly income, you must agree to credit counseling with a HUD-Certified Housing Counseling Agency.  

Other items:

·         The second mortgage is not affected and stays the same.  The government is planning to offer incentives to 2^nd mortgage holders to reduce the payments but the decision is up to the 2^nd mortgage holder.   

·         Unpaid past due property taxes will most likely be paid by lender and added to loan amount.

·         The lender will not pay past due condo assessments.

·         If the lender purchased property insurance (forced-placed insurance) then borrower can buy less expensive policy and lender will drop forced-placed insurance.  

·         Bankruptcy is okay.