Do you remember what the country was going through in the late 2000s? You couldn't turn around without hearing something about collateralized debt obligations, credit default swaps, and subprime mortgages. Our financial system was collapsing. Something had to be done.
The government created the Emergency Economic Stabilization Act of 2008, often called 'the bailout,' and the American Recovery and Reinvestment Act of 2009, known as the 'stimulus' or 'recovery act.' The main purpose of the Acts is to protect home values and savings, preserve homeownership, and promote job and economic growth.
To that end, Making Home Affordable (MHA) was created by the U.S. Treasury Department. MHA contains numerous programs intended to help distressed homeowners avoid foreclosure. The programs in it include:
Home Affordable Refinance Program (HARP)
HARP is for homeowners who are current on their mortgage payments and are having difficulty with a traditional refinance. You don't need equity to refinance with HARP. This program is available for homeowners whose mortgage is owned by Fannie Mae or Freddie Mac. Refinancing can allow you to take advantage of today's historically low interest rates and/or stretch your loan out over a longer period of time so your monthly payment can be lowered.
Federal Housing Authority (FHA) Short Refinance
If you're up to date on your mortgage payments and your home is underwater (in negative equity) you may want to look into a short refinance. If approved for a Federal Housing Authority (FHA) Short Refinance, your mortgage lender will reduce your unpaid principal balance by at least 10% and bring the amount you owe on your home closer to what its market value is. The eligibility requirements for a FHA Short Refi include a credit score of at least 500.
Home Affordable Foreclosure Alternatives (HAFA)
If you have no desire or ability to keep your home, the HAFA program may help you to give up the home under the most favorable terms. With HAFA, you can leave your home with a short sale or deed in lieu of foreclosure and receive up to $10,000 in relocation assistance.
Home Affordable Modification Program (HAMP)
HAMP is the principal program of Making Home Affordable. Modifying your mortgage loan under HAMP does not require you to have good credit, equity in your home, or be up to date on your mortgage payments. And it doesn't cost anything to get a loan modification. This is the best option for many distressed homeowners who want to keep their home. Like a refinance, it allows you to take advantage of today's low interest rates and/or stretch your loan over a longer period of time to bring the payment down. Unlike a refinance, there are no closing costs. To get a loan modification you will need to complete an application called a Request for Modification Assistance (RMA) which involves all of your financial information including income taxes, debt to income ratio, net present value statement, and a letter explaining what hardship caused you to be unable to afford your mortgage. If you are approved you will be asked to complete a series of trial modification payments (usually three). After that you will be approved for a permanent modification and your loan will return to normal servicing with a permanently lowered payment.
For all the good that loan modifications can do, they are difficult to get approved. The majority of homeowners who apply for one on their own are denied, some multiple times. You may need to work with an attorney to help you complete your application and prove to your mortgage servicer that you are eligible. Some attorneys charge outrageous fees and don't even focus their practice in that area of law. But there are some law firms that both have abundant experience and charge reasonable fees.
Keep in mind that all of these programs are set to expire December 31, 2016. And there is no guarantee that the next president will renew them. If you need help with your mortgage, don't delay. It's not too late to save your home just because you've been served with foreclosure. The government programs that are available are not perfect but they can be the difference between keeping your home and losing it.
