National loan modification guidelines were announced today as part of the “Making Home Affordable” program. The Obama administration’s two part program promises to help up to 9 million homeowners. One part of the plan is designed to encourage lenders to modify the loan terms for up to 4 million homeowners, and the second arm of the plan has a goal of refinance up to 5 million homeowners into more affordable fixed-rate loans. The loan modification program runs through 2012.

How do these programs work? For the modification program, borrowers will have to provide their most recent tax return and two pay stubs, as well as an “affidavit of financial hardship” to qualify. Borrowers are only allowed to have their loans modified once, and the program only applies for loans made on Jan. 1 2009, or earlier. Mortgages for single-family properties that are worth more than $729,750 are excluded, as are investment properties, second homes, and commercial properties. Lenders could reduce a borrower’s interest rate to as low as 2 percent for five years. Rates would then rise to about 5 percent until the mortgage is repaid.

Since many homeowners will not qualify for these programs companies providing loan modification services will likely be needed to help. If you want information about loan modifications, please contact me! There are a lot of scams out there so you need to be very careful. I can point you in a safe direction and also give you a free analysis to see if this is the best course of action for you BEFORE you give anyone money to modifiy your loans.

How will this affect you? Since the goverment modifications only lower rates for 5 years, if you want your loans modified then you should seriously consider contracting a law firm to handle negotiations for you so that you can get a permanent rate reduction. The cost of modification with the law firm I send my clients to costs 1% of the loan amount, less than the cost of refinancing. One does NOT need to be late on payments to modify a loan, and foreclosures can also be stopped with attorney involvement. This is a prime time to get bargains on real estate if you plan to build this type of investment portfolio. Since stock values continue to decline, moving your