Financial News

In an effort to help homeowners modify their mortgage loans, some lenders are taking steps to lower the principal amount, according to a new report from the Office of the Comptroller of the Currency (OCC). The report shows that while many lenders are taking the route of temporarily suspending interest to allow homeowners to catch up on payments, others have become even more lenient, lowering the amount of the principal owed for struggling borrowers.

The number of lenders taking this route has increased dramatically. In fact, from the first quarter to the second, the number of loan modifications involving a shift in the principal jumped from 3.1 to 10.1 percent.

There are a few reasons that banks are considering this option:

• Mortgage-servicing firms receive financial incentives for making modifications.
• Banks have more flexibility to modify loans because their balance sheets are starting to stabilize - and they're starting to raise fresh capital.
• "Taking the hit" now with a portion of the loss upfront is worth the possibility of having the remaining adjusted balance - with interest - paid in full down the line.

Of course, it doesn't hurt that the Obama administration has be putting pressure on banks to since the Home Affordable Modification program was put in place in March. Also, many banks simply saw that modifications weren't doing the trick; a whopping 56 percent of borrowers whose loans were modified in 2008's second quarter were default again a year later.

But experts say to not expect a principal adjustment as the first course of action from your lender. First, the lender will likely adjust or temporarily suspend your interest rate. If that doesn't work, the lender may extend the term of the loan. And finally, you may have some of the principal deferred.

Have you had a loan modification? Was part of your principal deferred in the process?

On the heels of learning that 263,000 more jobs were lost in September, Federal Reserve Chairman Alan Greenspan says to expect unemployment to top 10 percent. However, he notes that despite the fact that unemployment reached 9.8% in September - the highest figure since 1983 - the economy is indeed in the middle of recovery.

Obama, agreeing that we are in the midst of a recovery, says that he plans to place his focus on creating more jobs, a plan Greenspan supports. However, Greenspan doesn't believe that another stimulus package is the answer - at least, not so soon. Instead, he notes that extending jobless benefits is a better short-term solution as we wait out the economy, which is fixing itself.

Senators Charles Schumer and John Cornyn are already calling for extensions to unemployment benefits, health-care benefits, and tax credits to help people buy new homes. Schumer noted that the extension of unemployment benefits should reach the Senate soon and is predicted to pass.

Of course, being in the middle of a "recovery" doesn't mean much to those who have been laid off. So what do you do if you're one of those individuals - or will be soon? Here are a few ideas to keep in mind:

• Check Your Company's COBRA Plan - See how expensive it is and how long you can keep it. If it's too expensive, consider a more affordable plan but try not to go without coverage.
• See If You Qualify For a Severance Package - Check your company manual, talk to other employees, and ask HR to see if you're due some type of departure money.
• Apply for Unemployment Benefits - Unemployment benefits are available for laid-off workers for a minimum of 26 weeks. Take advantage of this benefit.
• Figure Your Budget - Prepare to cut expenses as you determine your budget for an indefinite amount of unemployed weeks.

With unemployment set to rise before it falls, it's good to prepare as much as possible by keeping emergency funds available in case this situation hits your own household.

If you have yet to take advantage of the tax credit for first-time home buyers, time is running out. The deadline to benefit from the sizable credit of up to $8,000 that was included as a part of the American Recovery and Reinvestment Act is November 30th, 2009.

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