While the most recent data suggests that conditions on the housing front are beginning to get better, there are still a number of homeowners struggling to make their payments across the country. In the past, people might have lost their homes due to unexpected health issues or medical expenses. In the current economy, joblessness, career changes and other financial issues present new challenges. In light of this, the federal government has provided several options to help homeowners facing difficulties over the last few years. However, depending on the impending election season, some of these stand the chance of being eliminated.
Two of the most popular government-sponsored options are: the Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP), for homeowners who live in a structure as their primary residence. HARP is designed for homeowners who have Fannie Mae or Freddie Mac loans, which make up about half of all loans.
Home Affordable Refinance Program (HARP)
HARP allows homeowners to refinance their homes if they can’t qualify through traditional refinancing means. These loans are designed for someone who is current on mortgage payments but with a reduced value to their home. Homeowners must submit a loan application, go through underwriting and pay any applicable refinance costs.
Home Affordable Modification Program (HAMP)
HAMP works to change loan terms in specific cases for working people who can’t pay their mortgage. The loan amount must be less than $729,250, and the loan obtained before Jan. 1, 2009. All expenses for housing must total more than 31 percent of your pre-tax earnings. The goal of HAMP is to reduce loan payments for your primary residence. Your lending institution will assist you with the process.
On June 1, 2012, the current administration broadened the requirements for those who qualify for HAMP. The debt-to-income ratio, previously at 31 percent, was reduced. Homeowners can also qualify even if they previously defaulted on some payments during a trial period.
Another program, the Second Lien Modification Program (2MP), will then modify a second bank loan after the first loan is adjusted through HAMP. This program offers incentives to the bank to reduce, lengthen or eliminate the loan.
Despite the best efforts of homeowners and their attempts to qualify for HARP or HAMP, they may not qualify or be able to make payments. Continued medical expenses, job loss or mounting debt from other sources can complicate financial matters even with a homeowner’s best intentions. In these cases, the Home Affordable Foreclosure Alternatives (HAFA) program might be a practical option.
Home Affordable Foreclosure Alternatives (HAFA)
HAFA provides up to $3,000 cash to help homeowners move into less-expensive housing and avoid the stigma of foreclosure. The homeowner must meet strict criteria, including being previously considered for HAMP and either turned down or unable to successfully make the modified payment for at least 60 days. HAFA provides additional benefits through one of two processes, short sales or deed-in-lieu-of-foreclosure. A short sale is when the bank permits the homeowner to sell the property for less than the amount owed. A deed-in-lieu-of-foreclosure allows the homeowner to voluntarily turn the title over to the bank. In return, the bank stops foreclosure.
A housing counselor or professional real estate agent will offer you free advice as part of the HAFA package. The mortgage company negotiates the new sale price of the home with you. You will not be responsible, either to the bank or through taxes, for the loss or the difference between the original mortgage and negotiated amount. HAFA also poses a less negative impact on your credit than either foreclosure or other short sales.
Got any advice for individuals looking to take advantage of these programs? If so, leave a comment below!