There are two parts to Obama’s plan. Loan modification is the first part. The loan modification is not a new loan; rather it is a modification on your current mortgage. If you qualify for the modification, you and your lender will work to establish new terms on your existing mortgage. To qualify for the loan modification you must meet the following conditions:

• Loan must be financed through Freddie Mac or Fannie Mae
• This must be your primary residence
• Mortgage must be originated before January 1, 2009
• There must be an unpaid balance that is equal to or less than $729,750
• Financial hardship must be proven. An affidavit is required
• Your mortgage payment must be more than 38% of your gross income. Your gross income is the amount of money you make prior to taxes being removed

If you meet these conditions, visit your lender today to see if you can qualify for a loan modification on your existing mortgage.

The other part of the Obama plan is the refinancing of your existing mortgage. If you refinance your home, you will be taking on a new mortgage with new terms. Like the modification plan, there are requirements that you must meet in order to be considered.

• The home must be occupied by you, the owner
• Mortgage payments for the past year must have been made on time or no more than 30 days late
• You must have the income to support the new mortgage
• The loan must be financed through Freddie Mac or Fannie Mae
• The mortgage you currently hold must be worth between 80% – 105% of the home’s current market value

If you meet these requirements and you would like to refinance your home, visit your lender to see what can be done.

Although the Obama Refinance and Loan Modification Program is government run, it never hurts to consult your real estate attorney. An attorney can read a contract better than you can and make sure that you are not missing any key points. The program is designed to help existing homeowners save their homes from potential foreclosure.

Here is just another example of the loan modification nightmare. Now, homeowners will be required to go through a trial period before the borrower will be allowed to permanently modify their loans. In other words, the banks want to make sure that the homeowner can still make their payments on time, otherwise what’s the use in modifying the loan in the first place?

The key point for loan modifications is to help borrowers who have fallen behind, late on their payments or just can’t afford their payments. There are plenty of scenarios in which this creates a hardship. For example, when the borrower purchased the home, it may have been “overvalued.” The property may have been valued at $400,000 when initially purchased. But, today it’s only worth $200,000. The real problem here is that the loan amount may be for $300,000. Thus, the homeowner is making a mortgage payment on a $300,000 loan, when the house is only worth $200,000. This is called an “upside down” situation.

Another example of unaffordabilty requiring a loan modification is loss of job. In this scenario, which is all too common right now, the borrower or borrower(s) have lost their jobs and can’t make their payments. The “catch-22″ here is that borrowers need to be able to show ability to re-pay. Well, how in the heck can someone show ability to “re-pay”, when they’ve lost their jobs? Couple that with having their credit ruined and you can quickly see that this is an untenable situation.

This new loan modification requirement for a trial period is just another barrier that administrators have put up to make it harder for borrowers to modify their loans permanently. Some may argue that it’s a good thing. However, I think it’s just another way for the banks and the administration to shirk their responsibilities to help the homeowners.

Let’s dissect this trial period. The trial period means that the lender gives you typically a three month period to test whether our new payment will succeed. In other words, if they’ve modified your loan to a lower payment and in three months you’re still unable to pay, the lender can reverse the loan modification.

Some people want to know whether the trial period is a requirement. If your loan is a Fannie Mac loan, then, yes, it is required if you’re part of the government’s program. The trail period could be as long as four months if you are current with your loan.

What about a foreclosure? Can the bank continue with a foreclosure? If you are in a trial period the lender is required to stop the foreclosure while the loan modification trial period is in effect. But, if you’re unable to complete the trial period, the lender can start up a foreclosure at any point.