GOVERNMENT MORTGAGE RELIEF PROGRAMS
HAMP – Home Affordable Modification Program
If you’re not unemployed, but you’re still struggling to make your mortgage payments, you may be eligible for the Home Affordable Modification Program (HAMP).
HAMP can lower your monthly mortgage payment to 31 percent of your verified monthly gross (pre-tax) income, which usually provides savings of hundreds of dollars per month.
You may be eligible for HAMP if you meet all of the following criteria:
- • You occupy the house as your primary residence.
- • You obtained your mortgage on or before January 1, 2009.
- • You have a mortgage payment that is more than 31 percent of your monthly gross (pre-tax) income.
- • You owe up to $729,750 on your home.
- • You have a financial hardship and are either delinquent or in danger of falling behind.
- • You have sufficient, documented income to support the modified payment.
- • You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
Loan Modification Terms & Procedures
- Participating servicers are required to service all eligible loans under the rules of the program unless explicitly prohibited by contract; servicers are required to use reasonable efforts to obtain waivers of limits on participation.
- Participating loan servicers will be required to use a net present value (NPV) test on each loan that is at risk of imminent default or at least 60 days delinquent. The NPV test will compare the net present value of cash flows with modification and without modification. If the test is positive: meaning that the net present value of expected cash flow is greater in the modification scenario: the servicer must modify absent fraud or a contract prohibition.
- Parameters of the NPV test are spelled out in the guidelines, including acceptable discount rates, property valuation methodologies; home price appreciation assumptions, foreclosure costs and timelines, and borrower cure and re-default rate assumptions.
- Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of gross monthly income (DTI).
- The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%), then if necessary extending the term or amortization of the loan up to a maximum of 40 years, and then if necessary forbearing principal. Principal forgiveness or a Hope for Homeowners refinancing are acceptable alternatives.
- The monthly payment includes principal, interest, taxes, insurance, flood insurance, homeowner’s association and/or condominium fees. Monthly income includes wages, salary, overtime, fees, commissions, tips, social security, pensions, and all other income.
- Servicers must enter into the program agreements with Treasury’s financial agent on or before December 31, 2009.
HARP – Home Affordable Refinance Program
If you’re not behind on your mortgage payments but have been unable to get traditional refinancing because the value of your home has declined, you may be eligible to refinance through MHA’s Home Affordable Refinance Program (HARP).
HARP is designed to help you get a new, more affordable, more stable mortgage. HARP refinance loans require a loan application and underwriting process, and refinance fees will apply.
- You may be eligible for HARP if you meet all of the following criteria:
- The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
- The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
- The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
- The current loan-to-value (LTV) ratio must be greater than 80%.
- The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.
How the Home Affordable Refinance program works
Lenders usually require homeowners to have a substantial amount of equity in their homes — at least 20% to refinance. That’s an insurmountable problem for many people who desperately need to get out of an adjustable-rate loan but can’t because home values have fallen so much during the last few years.
But the Home Affordable Refinance program, part of President Obama’s Making Home Affordable foreclosure prevention program, is supposed to help borrowers overcome that. It lets homeowners refinance a first mortgage worth up to 125% of the property’s market value. That’s the case even if you have a second mortgage that puts you even further upside down on your home.
It means homeowners who owe more than 125% of their home’s value will be able to qualify for the program even if that debt is split between two or more loans.
Let’s say your home is worth $300,000 and you owe $375,000 on your first mortgage. You can borrow up to $375,000 to repay and refinance your first loan. You can do that even if you have a second mortgage for $40,000, putting your total mortgage debt at $415,000, or 138% of the value of the home.
Many second mortgage holders have blocked that kind of refinancing. However, some of the biggest banks, including Bank of America, Citi, Chase and Wells Fargo, have agreed to participate in the Home Affordable program’s second-mortgage program. That ensures that they’ll accept a refinancing of your primary mortgage and help you afford the new payments by reducing the interest rate on your home equity loan to as little as 1% for five years.
The new primary mortgage will charge the prevailing interest rate for a 30-year, fixed-rate mortgage. Lenders are going easy on requirements for minimum credit scores and suspending the usual requirement to have private mortgage insurance, even if you have less than 20% equity in your home, as long as the original mortgage didn’t require mortgage insurance.
To qualify, you must be current on your mortgage, meaning no payments were more than 30 days late in the past year. And you must be able to document that you have enough income to support the new payments. You do not have to live in the house. This is the first government program that will help you refinance vacation and investment properties.
HAFA – Home Affordable Foreclosure Alternatives
In 2009, the Treasury Department introduced the HAFA program to provide a viable option for homeowners who are unable to keep their homes through the existing Home Affordable Modification Program (HAMP). The HAFA program took effect on April 5, 2010 and sunsets on December 31, 2013.
If you can’t afford your mortgage payment and it’s time for you to transition to more affordable housing, the Home Affordable Foreclosure Alternatives (HAFA) program is designed for you. HAFA provides two options for transitioning out of your mortgage: a short sale or a Deed-in-Lieu (DIL) of foreclosure.
In a short sale, the mortgage company lets you sell your house for an amount that falls “short” of the amount you still owe. In a DIL, the mortgage company lets you give the title back, transferring ownership back to them.
In either case, HAFA offers benefits that make the transition as favorable as possible:
- You can get free advice from HUD-approved housing counselors and licensed real estate professionals.
- Unlike conventional short sales, a HAFA short sale completely releases you from your mortgage debt after selling the property. This means you will no longer be responsible for the amount that falls “short” of the amount you still owe. The deficiency is guaranteed to be waived by the servicer.
- In a HAFA short sale, your mortgage company works with you to determine an acceptable sale price.
- HAFA has a less negative effect on your credit score than foreclosure or conventional short sales.
- When you close, HAFA provides $3,000 in relocation assistance.
What are the steps for evaluating a Loan?
- Borrowers solicitation and response,
- Assess expected recovery through foreclosure and disposition compared to a HAFA short sale of DIF
- Use of borrowers financial information from HAMP
- Property valuation
- Review of title
- Borrowers notice if short sale or DIL not available to the borrowers that have expressed interested in HAFA