President Barack Obama's Loan Modification Plan is one of the most widely discussed financial measures that any government has undertaken in recent times.
This is an attempt by the President and his team of financial experts to undo the mortgage investment debacle, and reduce the impending foreclosures.
Foreclosures in current scenario help neither the defaulting homeowner, nor the lender.
In February 2009, this team of financial experts unveiled this scheme under which lenders were asked to come forward to resolve this impasse.
Through this plan, the president is also trying to ensure that homeowners are not rendered homeless because of their inability to pay the EMIs as per schedule in the current financial scenario.
If such help is not rendered, many homeowners stand to lose their homes.
The entire scheme will cost the federal government about $75 billion, and will benefit almost 4 million homeowners.
Some of these homeowners are already delinquent, whereas others are on the brink of defaulting.
The scheme will continue till December 2012.
Only those homeowners who have an outstanding debt not exceeding $730,000 in their home mortgage are entitled to approach lenders for such relief.
Under this scheme, lenders will try to bring down the EMIs such that they don't exceed 31 percent of the borrower's monthly income.
This reduction in EMIs is to be achieved either by reducing interest, or increasing repayment term.
In some cases, it may mean both these measures and even writing off part of the outstanding interest.
For extending such consideration, these lenders will be eligible for some subsidies.
A sum of $1000 per annum is being offered to lenders for three years in succession on each and every such modification of loan that they have facilitated.
There are incentives for borrowers as well.
These are to ensure that the borrower adheres to repayment schedule determined under this program and doesn't force lender into further losses.
Borrowers would be given $1000 continuously each year, for a period of five years from the day this loan modification becomes effective, provided they do not default even once during that period.
The present real estate scenario has left lenders in an odd position.
Borrowers are constantly becoming delinquent, but foreclosing is proving to be no remedy either.
This is because demand for homes has come down drastically, as many people have lost jobs and those who are employed are not certain if they will remain employed.
Because of this uncertainty, even employed people are not coming forward to purchase homes.
If there is no demand for homes, it becomes difficult for the lenders to realize an amount through sale proceeds that covers the amounts owed to them.
Obama's Loan Modification Plan may therefore help them to recover substantial amounts, and set the ball rolling.