The New: U.S. mortgage modification plan eligibility requirements

The Obama administration on Wednesday gave lenders a green light to begin modifying home mortgages under a new $75 billion program aimed primarily at people facing imminent financial hardship.

The $75 billion mortgage modification plan is part of a larger Obama administration effort announced on Feb. 18 to support the U.S. housing market and distressed homeowners. Eligibility requirements for the mortgage modification program include the following:


* Borrowers must represent that they do not have sufficient liquid assets to make their monthly mortgage payments. These assets will not include retirement accounts.

* Every borrower who seeks a modification must be screened for financial hardship. Borrowers must demonstrate a change in circumstances that causes hardship, such as a drop in income or an imminent payment increase.

* Delinquency is not a requirement, and households that are at imminent risk of default are eligible.

* Borrowers with high total debt may qualify but only after they enter government-certified debt counseling.

* The mortgage to be modified must have been originated on or before Jan. 1, 2009, and homes must be owner-occupied, 1-4 unit family dwellings that are primary residences.

* Loans must have unpaid principal balance up to $729,750 for a single-family home, $934,200 for a two-unit home, $1.129 million for a three-unit home, and $1.403 million for a four-unit home.

* New applications for the program will be accepted until Dec. 31, 2012. There is no borrower cost to obtain a modification.

* There is no minimum or maximum loan-to-value ratio.

* Borrowers in bankruptcy are not automatically eliminated from consideration for modification, and borrowers in litigation regarding their mortgage can qualify for a modification without waiving their legal rights.

* Foreclosure actions are temporarily suspended while borrowers are considered for foreclosure prevention options. Loans can only be modified once under the program.

* Eligibility for the program will sunset at the end of three years.


* The U.S. Treasury will share with lenders and mortgage servicers part of the cost of reducing monthly payments.

* The lender is responsible for reducing payments to 38 percent of the borrower's monthly income through interest-rate reductions or other means. The Treasury will match dollar-for-dollar further reductions that bring payments down to 31 percent of the borrower's monthly income.

* Loan servicers that modify loans according to the program guidelines will receive a $1,000 up-front fee for each modification and a $1,000 annual fee for each still-performing loan.

* Home owners who make modified payments on time will receive a $1,000 reduction in their loan principal each year, up to $5,000.

* Lenders and investors will receive a one-time bonus of $1,500 for each loan modified before borrowers miss any payments. Servicers will receive a $500 bonus on these loans.

* The U.S. Treasury is developing additional incentives to encourage extinguishing second-lien home equity loans to reduce a borrower's overall indebtedness.

* The program sets an interest rate floor of 2 percent on modified loans. The modified rate must remain in place for five years.

* After five years, the rate increases 1 percent per year up to a cap that is intended to reflect market rates at the time the loan was modified.


* Program targets 4 million to 5 million borrowers with solid payment histories on mortgages owned or guaranteed by Fannie Mae (FNM.N: Quote, Profile, Research) or Freddie Mac (FRE.N: Quote, Profile, Research) that were originated with a loan-to-value ratio of 80 percent or less.

* Lenders can refinance these loans with guarantees by Fannie Mae or Freddie Mac even if the loan-to-value ratio has risen to up to 105 percent. No additional credit enhancement is needed.

* Borrowers are responsible for paying lender fees, points and other closing costs.

* Interest rates are prevailing market rates for 15-year and 30-year fixed-rate mortgages. (Compiled by Mark Felsenthal and David Lawder; Editing by Leslie Adler)