Much buzz has been going around regarding Obamas loan modification program. Basically, it addresses the problem of most Americans affected by the recession. With lower salaries, forced holidays and at worst, loss of employment, paying for their homes can be a problem. With Obamas loan modification program though, Americans struggling with the recession now have the chance of maintaining home ownership even if they have little or now equity at all.

The administration requires participating loan providers to reduce the monthly payments based on the affordability levels of the borrowers, that is up to 31 percent on the creditors gross monthly income. To lower the payments, interest rates will be reduced up to 2 percent. The plan also requires the loan providers to extend loan term up to 40 years. If it is still inadequate, payments of loan would require no interest rate on the principal amount but the program does not require loan providers to reduced the principal amount of the mortgage.

Obamas loan modification program is voluntary. There are no specific listings of investors and loan provider who will partake in the program. To further enhance program participation,a cash incentive worth $1000 will be given to providers for each modified loan and an additional payout of $1000 each year up to 3 years. Borrowers on the other hand can get up to $1000 mark down on the principal of their loan each year for up to five years if they are able to make their payments on time. The loan incentive program has a big impact on the part of the borrower to keep their loan current.

If the loan provider has not enetered into agreement with Treasury’s financial agent, no payments shall be made and neither party can receive the cash incentive until the modified loan payments have been made for at least three months. The loan incentives has a big impact on the part of the borrower to keep their loans current.

Only borrowers who are primary residents with an outstanding principal of $729,750 and below are eligible for the program. Borrowers must have a solid payment background on an existing mortgage, but wasn’t able to compensate then due to economic crisis.

Basically the program focused on individuals who are undergoing serious financial problems, documents such as income records or tax records and all other pertinent documents will be required from borrowers for proof of their eligibility to the program.

Having these documents, however, will not automatically qualify you for the program. Only loans on or before Jan. 1, 2009 will be considered for the program. Mortgages are subject to modification until December 31, 2012.

To determine if a particular mortgage is eligible for Obamas loan modification program, the net present value test must be performed on each loan. The test compares if the modified loan produce more cash flows than the mortgage loan that was not modified at all. If it shows positive results then the loan is qualified for modification.

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