Obama’s Home Affordable Modification Program (HAMP)
The recent home loan modification and anti-foreclosure bill passed by Congress, aimed at helping millions of struggling borrowers keep their homes, allows for qualified homeowners to swap out a high-interest rate for a 30-year fixed loan backed by the Federal Housing Administration. Under the new Obama plan for homeowners, banks are encouraged to spare borrowers from foreclosure and cracks down on predatory lenders who take advantage of them. President Barack Obama assured that homeowners facing foreclosure would have a second chance.
If the following guidelines reflect your situation, then you may qualify for HAMP:
- Your home is your primary residence.
- The amount you owe on your first mortgage is equal to or less than $729,750.
- You are having trouble paying your mortgage, perhaps due to an increase in your mortgage payment or a reduction in your income or a hardship (like medical bills) that has increased your expenses.
- You received your current mortgage before January 1, 2009.
- Your payment on your first mortgage (including principal, interest, taxes, insurance and homeowner’s association dues, if applicable) is more than 31% of your current gross income.
According to President Barack Obama, “Under this plan, lenders who participate will be required to reduce those payments to no more than 31 percent of a borrower’s income. And this will enable as many as 3 to 4 million homeowners to modify the terms of their mortgages to avoid foreclosure.” [White House, 2/18/2009]
Speaking in the White House’s East Room, President Obama stated, “too many administrative and technical hurdles made it very difficult to navigate, and most borrowers didn’t even bother to try… This bill removes those hurdles, getting folks into sustainable and affordable mortgages and, more importantly, keeping them in their homes.” [White House, 5/20/2009]
Home Loan Modification
The modification of your existing home loan contract, a loan modification as it is commonly referred to, is a process where the terms of your mortgage are modified outside the original terms agreed to by you and the both you and the lender are bound by these new terms.
With a loan modification, time is of the essence as every day you go on without making a payment moves you closer to foreclosure. That is why we recommend you contact one of our financial advisers before falling more then 90 days behind on your mortgage. We have helped several borrowers that have gone beyond the point of being 90 days late; however the odds of successful completion of your loan modification are diminished considerably.
Short Sale
A short sale is when the lender agrees to allow you to sell your home for less than what you owe on it. In a typical short sale the lender agrees not to pursue you for the difference between what is owed on the property including all arrears and what the home sells for. This is an especially good option for those who owe more on their loan contract then what the home is worth. The bank must agree to the final offer before the sell of the home can be finalized, giving the lender the final say in whether or not an offer to buy your home is accepted. Because the national lenders are dealing with such a high number of short sales, it will take considerably longer to close the sale. Regardless if the lender agrees to short sale your home, it does not mean they will stop the foreclosure process; however it could delay the process, and may potentially help you avoid foreclosure.
Short Payoff Refinance
A Short Refinance, also known as a short payoff, is a transaction where your lender agrees to accept less than the full amount owed. Rather than your property being sold, it is refinanced with a new lender, allowing you to retain ownership of the property, while at the same time avoiding a foreclosure or possible bankruptcy. This can allow borrowers to refinance as your existing lender will lower the balance to meet the guidelines of your new lender.
Borrowers who want to keep your home, but don’t have enough equity to get into a foreclosure bailout loan, may find their answer with a short refinance. By negotiating a short refinance with your current lender, you can obtain a payoff of less than the full amount owed, and refinance your home with a new lender. A Short-Pay Refi allows you to keep your home, lower your payments and eliminate the upside down equity in your home by reducing the principal balance.
Typically a short refinance is only an option for borrowers who have not fallen behind more then 30 days on their mortgage payments within the past 12 months as the borrower must still qualify for a loan.
Deed-In-Lieu of Foreclosure
A Deed-In-Lieu of Foreclosure is when a borrower relinquishes all interest in the property to the lender. The borrower must then vacate the property and lose any equity which may be left in the property
Cash-for-keys negotiation
Cash for keys is when your lender will offer you money to hand over the keys of your home and vacate your property. Depending on the situation and lender, this frequently occurs at the end of the foreclosure proceedings. The lender typically agrees to these terms in order to avoid the cost of eviction, as well as to endure the property is turned over in the best possible condition for resale.
Forbearance / Repayment Plan
Forbearance is when the lender agrees to delay or stop the foreclosure process for a set amount of time often allowing the borrower to catch up on their payment schedule. The terms of forbearance may or may not include the deferment of the borrower’s monthly payments to a later date.
Partial Claim
Under the Partial Claim agreement, a lender will advance funds on behalf of a borrower in an amount necessary to reinstate a delinquent loan (not to exceed the equivalent of 12 months PITI). The borrower will execute a promissory note and subordinate mortgage payable to United States Department of Housing and Urban Development (HUD). Currently, these promissory or “Partial Claim” notes assess no interest and are not due and payable until the mortgagor either pays off the first mortgage or no longer owns the property. A partial claim is typically offered on all FHA loans.
Payment Reduction Plan (PRP)
The Payment Reduction Plan (PRP) loss mitigation option is replacing the HomeSaver Forbearance (HSF) in Fannie Mae’s Loan Workout Hierarchy. Fannie Mae’s Payment Reduction Plan (PRP) provides a borrower with temporary payment relief while the servicer and borrower work together to find the appropriate permanent foreclosure prevention solution. PRP offers an additional foreclosure prevention solution for borrowers who are ineligible for the Home Affordable Modification Program (HAMP).
Under the PRP monthly commercial loan payments can be reduced up to 30% off of the total principal and interest only. The program is strictly for non owner occupied and investment properties. During the maximum six month period of forbearance, the servicer should work with the borrower to identify the feasibility of, and implement, a more permanent foreclosure prevention alternative. The servicer should evaluate and identify a permanent solution during the first three months of the forbearance period and should implement the alternative by the end of the sixth month. [Fannie Mae]
It is important to confirm whether or not you qualify for HAMP, and if not, determine whether you are eligible for an alternative foreclosure prevention option based on any temporary or permanent financial hardship you are experiencing.
