Owners Have Options, But What is Best?

There have been numerous programs designed to assist the distressed homeowner launched under the Obama Administration. Most recent is the July 1, 2010 Home Affordable Unemployment Program (HAUP) designed to reduce, or suspend mortgage payments for at least 3 months, in coordination with the loan servicer's guidelines. The loan must be under $729,750 and originated on or before January 1, 2009, and must be in default already, or almost there. Monthly mortgage payment must be reduced to less than or equal to 31% of the borrower’s gross monthly household income and may be suspended in full. Borrowers who went through the Home Affordable Modification Program (HAMP) are not eligible, but a loan modification program may be put in place for the HAUP borrower once a job is found.

The programs available to borrowers are:

• Home Affordable Unemployment Program (HAUP)
• Home Affordable Refinance Program (HARP) - among the requirements is that the existing loan cannot be more than 125% of the current market value of the property, and must be an owner-occupied 1-4 unit property.
• Home Affordable Modification Program (HAMP) - A prime requirement, among several, is that it can be a property with either one or two loans on it, but the payment on the first loan (P.I.T.I.) must not exceed 31% of the gross monthly income of the borrower. Many borrowers have had trouble meeting that payment-to-income percentage figure, and then do not qualify for that loan mod.
• Home Affordable Foreclosure Alternative Program (HAFA) - This is a program with specific forms, guidelines and timelines and must be offered to the borrower by the participating bank if the HAMP loan mod has failed. There are certain protections and benefits to the qualified borrower under this program, but one problem has been the 2nd lien holders who refused to participate because they may not receive as high a payoff under this program. The buyer of such a property must also cooperate with certain timelines.

Lenders who chose to participate in one program are required to participate in all of them, which is currently about 140 lenders. IMPORTANT: To find out if your lender is, go to http://www.makinghomeaffordable.com/contact_servicer.html. Read about other aspects of these programs at http://www.makinghomeaffordable.com/.

If you have an FHA or VA loan, those loans will have their own version of this program.

Last, but definitely not least: Borrowers in distress who understandably do not want to give up their home, normally have a very difficult time "putting their foot down" on the subject of just how long they will attempt to pursue a loan modification with their bank before giving up. While some servicers are more responsive and are actively working with their borrowers, there are many others who are falling between the cracks.

 If a borrower has lost their job and is concurrently in a job search while attempting to pursue a loan mod that's already been started, or if a borrower keeps hearing that the bank needs an item that the borrower has already submitted, perhaps multiple times, or if the bank or servicer keeps adding new items required before it can give an answer to the borrower, my advice is: BORROWER BEWARE. The fact is, time is slipping away--you have no loan modification, plus you may now have a notice of default recorded on your property, and then the notice of sale will be posted to your door shortly before your 121 days are up. Some banks are taking their time recording a Notice of Default, but others are very unforgiving and will NOT extend your sale date without either the loan modification in place or an accepted contract from a buyer, because they need to move forward with that property. For most people, selling their property under short sale conditions has less severe long-term impact than going through foreclosure. Please contact me for more information about those conditions.

Please, don't let foreclosure sneak up on you while you keep telling yourself you're going to get the loan modification after you just send in one more piece of requested information. You must meet the servicer's requirements, and many people don't qualify due to financial circumstances. Before you get to that stage, investigate an optional short sale possibility early while you still have time to find a buyer, negotiate the contract, submit your short sale package, and get through escrow. This could make the difference between 2-3 years' impact on your credit record vs. 7 years' impact due to foreclosure.