Photo: Daniel X. O’Neil / Flickr
With millions of Americans delinquent on their mortgages or in some phase of foreclosure, Uncle Sam has developed roughly a dozen programs designed to help struggling homeowners keep their properties.”We really lead the marketplace when it comes to bending over backward to keeping people in their homes,” says Brian Sullivan of the U.S. Department of Housing and Urban Development.
“We want to make sure that we’ve exhausted all other options before families lose their properties.”
Four years of anti-foreclosure efforts under the Bush and Obama administrations have spawned a confusing alphabet soup of aid programs, though. Should you apply for HAMP, or would you do better with HARP? What about HAFA?
To help sort things out, we offer a rundown of the government’s major anti-foreclosure initiatives.
Sullivan also recommends homeowners in trouble contact a HUD-approved mortgage counselor for free, one-on-one advice. But he warns that you should avoid “mortgage-rescue” companies that claim they can save your home from foreclosure — for a price.
“The rule you should take to heart is: ‘Never pay anyone a dime who’s making pie-in-the-sky promises,'” says Sullivan, who notes that HUD-approved counselors never charge upfront fees.
Home Affordable Modification Program
One of Uncle Sam’s main foreclosure-fighting programs, HAMP aims to move homeowners who took out high-interest mortgages during the housing boom into more-affordable loans.
The government will pony up some cash and give your mortgage company special incentives to cut your monthly payments down to no more than 31% of gross income.
The lender must first drop your mortgage rate down to as low as 2%, then extend your loan’s term to a maximum of 40 years if necessary.
You can qualify for HAMP if you’re pay more than 31% of your pretax income toward your mortgage and have a loan overseen by a participating lender or servicer. Click here for a list of other requirements you’ll have to meet.
Home Affordable Refinance Program
HARP helps consumers who are up to date on their home loans but can’t refinance and take advantage of today’s low mortgage rates because their properties are “underwater.” That’s where your home’s value has fallen in today’s depressed market to less than your unpaid mortgage balance.
Lenders won’t usually allow underwater homeowners to refinance, but HARP requires banks to do so if you meet a list of qualificationsand have a mortgage controlled by government-backed Fannie Mae or Freddie Mac.
President Barack Obama just announced a loosening of HARP’s requirements, so homeowners who’ve checked out the 2-year-old program in the past and thought they didn’t qualify should look again.
FHA Forbearance for Unemployed Homeowners
This program requires lenders to give up to 12 months of “forbearance” to anyone who has a Federal Housing Administration mortgage and who’s laid off from a job.
Under the initiative, qualified homeowners can skip all or part of their monthly mortgage bill for a year before foreclosure can take place. Details are available here.
Home Affordable Foreclosure Alternatives
If all else fails and you can’t save your home, HAFA will let you at least have a “graceful exit” — a deal in which you leave the place voluntarily instead of waiting for the bank to kick you out.
Under HAFA, your bank won’t go to court to pursue a full-blown foreclosure, but will instead accept one of the following:
A short sale.
With a HAFA short-sale agreement, you’ll get some time to try to sell your place to a buyer at an asking price that’s less than your unpaid mortgage balance. (The bank will simply “eat” the difference.)
Your lender will tell you in advance what price it will accept, and might even let you skip part or all of your monthly mortgage bill while your house is on the market.
A deed in lieu of foreclosure.
Under this arrangement, the lender will accept the deed to your property as full payment for your loan — even if your home is worth less than your remaining mortgage balance. Again, the bank will simply eat the difference.
With either type of deal, your lender will typically give you $3,000 for moving expenses once your HAFA agreement becomes final.
The program is open to homeowners with mortgages either serviced by lenders that participate in HAMP or who have loans owned or backed by Fannie Mae or Freddie Mac.