Based on the affordability levels of the borrowers, the administration requires participating loan providers to reduce the monthly payments. 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.

Participation in 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.

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

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

The program is primarily aimed to aid individuals undergoing serious financial problem. Documents such as income tax records and other pertinent papers will be required from the borrowers as 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.

The net present value test must be performed on each loan in order to determine if a particular mortgage is eligible for Obama’s loan modification program. 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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