Due to the economic downturn resulting in plummeting home values and other financial hardships, the federal government created programs to help stem the increase in foreclosure proceedings. These programs are designed to work with governmental aid and mortgage lender concessions. This articles looks at some of these government programs designed to help the homeowner prevent foreclosure.
To help stem the wave of foreclosure due to economic hardships, the Obama Administration created a plan known as Making Home Affordable. This plan currently consists of four separate programs designed to help struggling homeowners. The four plans under the program are
- Home Affordable Modification Program
- Home Affordable Refinance Program
- Second Lien Modification Program
- Home Affordable Foreclosure Alternatives Program
Home Affordable Modification Program
The Home Affordable Modification Program or HAMP is a mortgage modification program. HAMP is designed for homeowners that are facing a financial hardship that are struggling to make their current mortgage payment. As part of the application process, the hardship must be documented in order to qualify for the program. Most qualifying hardships are due to excessive debt, reduced income, increased expenses or lack of cash reserves.
Under the program, the homeowner’s mortgage server can reduce the modified home loan to a 2% interest rate on a 30-year loan. In order to qualify for HAMP, the homeowner(s) monthly gross income must be greater than 31% of the modified loans total monthly payments (including property tax and insurance). The mortgage server is not mandated to reduce the principle amount.
Home Affordable Refinance Program
Another alternative for lower monthly mortgage payments is the Home Affordable Refinance Program or HARP. Unlike HAMP, which is a mortgage modification, HARP is a refinance program that uses current interest rates. This program can help reduce monthly payments if the current interest rate is lower than the original loan rate on the home. It may also help reduce monthly payments if some of the principal amount has been paid down from the original loan.
Another big advantage is if the original loan has a variable interest rate and is ready to reset at a higher rate. Under HARP the rate can be at a fixed rate for the duration of the loan. Under this program the mortgage servicer should process the refinance without any fees to the homeowner.
Second Lien Modification Program
If a struggling homeowner has a second, they may be able to get a reduced interest rate with the Second Lien Modification Program or 2MP. In order to take advantage of 2MP, the first lien must first be modified under the Home Affordable Modification Program. Under 2MP, the mortgage servicer can reduce the rate to 2% on an interest and principal loan and 1% on an interest only second mortgage.
Home Affordable Foreclosure Alternatives Program
If a homeowner feels that they can no longer afford the monthly mortgage payments, even with a Making Home Affordable program, a short sale or a deed-in-lieu of foreclosure could be alternatives to foreclosure. A short sale is when the home is sold for less than what is owed on the mortgage. A deed-in-lieu of foreclosure is when the property is transferred to the mortgage servicer before they foreclose on the property.
Using the Home Affordable Foreclosure Alternatives Program or HAFA makes using a short sale or deed-in-lieu of foreclosure easier for the homeowner. Under HAFA Program, the homeowner can also receive $3,000 dollars to help them relocate to more affordable housing.
If the homeowner is a veteran, they maybe able to get a VA refinance to help with lower monthly payments as an alternative. For more information on the Obama Administrations Making Home Affordable, the homeowner can contact the HOPE Hotline at 888-995-4673.
Source:
Making Home Affordable, website accessed February 5, 2011, http://www.makinghomeaffordable.gov/about.html
James Clausen - Clausen received a Bachelors Degree in Business Administration in Automotive Management and Marketing at Northwood University, graduating ...
Join the Conversation