President Obama has released a new California Loan Modification plan that will restructuring distressed mortgages in order to keep struggling borrowers in their homes and help insert a floor beneath steadily dropping property values. The President has allocated $75 Billion to reworking troubled loans. Mortgage modifications need to be properly engineered to work, and many early ones weren't. The Obama administration unveiled fresh details on its plan to restructure at-risk loans and help as many as 4 Million California home owners avoid foreclosure. Here are 6 things you need to know about Obama's California loan modification program.

• Focus On Payments Being Lowerd: The plan is based on the belief that struggling borrowers will stay in their homes as long as they can make their monthly mortgage payments comfortably.
• Debt To Income Goal is 31%: President Obama's plan requires participating loan servicers to reduce monthly mortgage payments to less than 38% of the borrower's gross monthly income. The government would then assist in lowering the mortgage payments to no more than 31% of the borrower's monthly income. In lowering the payment, the servicer would first reduce the interest rate to as low as 2%. If that's not enough to hit the 31% mark, they would then extend the terms of the loan to up to 40 years. If that's still not enough, the servicer would forebear loan principal at no interest.
• Bank Incentives To Modify: To encourage participation, servicers will be paid $1,000 for each California Loan Modification and will get an additional $1,000 payout each year for as many as three years, as long as the borrower continues making their mortgage payments on time. California Borrowers can get up to $1,000 knocked off the principal of their loan each year for as many as five years if they make their payments on time. Neither party can receive the cash incentives until the modified loan payments have been made for at least three months.
• Financial hardship: The Obama administration is to help responsible California homeowners whos property values have decreased to a point that has made refinance impossible. This particular plan is only owner-occupied, primary residences with outstanding principal balances of up to $729,750 eligible. Occupancy status will be verified through documents, such as the California borrower's credit report. In addition, the program is designed to target homeowners who are undergoing "serious hardships" such as a loss of income, medical problems, death, etc... which have put them at risk of default on their loan. To participate, borrowers will have to sign an affidavit of financial hardship and verify their income with documents. Only loans originated on or before Jan. 1, 2009, are eligible, and modified payments will remain in place for five years. Now that the administration's plan is out, lenders are free to begin modifying California loans.
• 2nd Mortgages: The Obama plan also addresses the issue of second liens, such as home equity loans or home equity lines of credit, by offering incentives to close them out completely.
• Effectiveness of the Plan: It's impossible to predict exactly how effective this plan will be in the Calfornia community. We expect that as news of the plan is published in the media that home owners will become more proactive in seeking out help with their lenders. This is why attaining the services of ALMS can be so critical to your success. Lenders will be looking to modify loans that are presented in a complete and streamlined fashion to them. Having our company and our attorneys working on your behalf will ensure that you too can benefit from this new Federal loan modification program.