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Making Home Affordable

The President's plan was created to help millions of homeowners refinance or modify their mortgages. This program, called Making Home Affordable, has options for many homeowners. So, you should take the first step and figure out exactly what YOUR options are.

This website has tools that help you determine if you are among the up to 9 million homeowners who can benefit from Making Home Affordable. There are REFINANCE options and MODIFICATION options. In both cases, the goal is to get you into a loan that you can better afford. Take a few minutes and find out your options and receive suggestions about what you can do next.

Many homeowners pay their mortgages on time but are not able to refinance to take advantage of today’s lower mortgage rates due to a decrease in the value of their home. A Home Affordable Refinance will help borrowers whose loans are held by Fannie Mae or Freddie Mac refinance into a more affordable mortgage.

Many homeowners are struggling to make their monthly mortgage payments either because their interest rate has increased or they have less income, or are experiencing some other financial hardship. A Home Affordable Modification will provide them with mortgage payments they can afford.

Call 888-995-HOPE to get help reviewing this option.

Loan Modification

If you can no longer afford to make your monthly loan payments, you may qualify for a loan modification to make your monthly mortgage payment more affordable. There are several reasons why your payments may be hard to afford. Perhaps your interest rate has increased or you have lost a job or have less income. Maybe you are experiencing a hardship that has increased your expenses, like medical bills. Even if you have already missed one or more payments, you may still be eligible.

Many homeowners are struggling to make their monthly mortgage payments perhaps because their interest rate has increased or they have less income. A Home Affordable Modification will provide them with mortgage payments they can afford. Lets walk through the steps to see if you are eligible for this option.

• 1. Is your home your primary residence?
• 2. Is the amount you owe on your first mortgage equal to or less than $729,750?
• 3. Are you having trouble paying your mortgage?

For example, have you had a significant increase in your mortgage payment OR reduction in your income since you got your current loan OR have you suffered a hardship that has increased your expenses, like medical bills, divorce or increase in other expenses.

• 4. Did you get your current mortgage before January 1, 2009?
• 5. Is your payment on your first mortgage more than 31% of your gross income. When figuring this out, be sure to include principal and interest, taxes insurance and any homeowners fees for the property. You may need to use a calculator to figure this out, but this is the rule of thumb that lenders are using to determine eligibility.

You may qualify for the Home Affordable Modification if you answered yes to all the five basic questions. So, you still live in the house, your having trouble affording these mortgage payments, and your loan was originated before 2009 and is less than $729,750.

The next step is to gather the information you will need to provide to your lender. Generally, its best to gather this information before you call the lender – this will reduce your frustration and the amount of time you spend on this process overall.

After you have the information put together, you should call your mortgage servicer and ask to be considered for a Home Affordable Modification. The number is on your monthly mortgage bill or coupon book.

Short Sale Introduction

A Short Sale, as the name implies, is an agreement between the owner of a home and the lender to accept an offer for less than the total amount owed to pay off the loan. It usually occurs when the current homeowners can no longer afford the mortgage payments on their property and the lender decides that selling the property at a loss is better than the alternative of a foreclosure.

Losing your home to foreclosure could seem like a devastating experience. However, mortgage challenges happen to a lot of people – sometimes its due to a job loss, serious illness, a major accident, or divorce. Sometimes people decide to pursue a short sale if they have been denied for a mortgage modification, are still having trouble making their mortgage payments, or if their home is worth less than the amount of the mortgage.

What happens in a short sale is that the lender lets you sell the home for LESS than the amount of the mortgage. Although it sounds like the perfect way out of a tough financial spot, your decision to enter into a short sale transaction should not be made lightly. It’s a serious situation, and requires a lot of work by you, and by the buyer of your home, as well as the realtors and other parties involved in the transaction. Also, the approval to execute the short sale must come from both the first lien holder, and any second lien holder as well.

So, its important to remember that the short sale is not a fast process, but its one that can be accomplished if you begin the short sale with the lender early on, when you are first trying to sell the home.

But if you can accomplish a short sale, there are substantial advantages to you rather than simply letting your home be foreclosed on. These benefits of a short sale include:

• 1. You retain more control of the process and the timing of the sale of the house
• 2. The long term financial impacts are reduced
• 3. You can receive short term financial benefits as well

The government has recently created a series of benefits and a new process for streamlined short sales that may help you. You are encouraged to understand how this process works as you explore your options.

Foreclosure Process

Let’s review the facts of the foreclosure process, and how it impacts you.

Most people know that in the case of foreclosure the homeowner ends up losing the home. That is true – but there are three negative impacts to the foreclosure action.

• 1. You will lose your home. Sometimes this can take months, depending on the state the house is located in and specifics of your mortgage. And the timing is something you don’t control. But when a foreclosure is completed, you will end up losing the home, and the process can be very stressful.
• 2. Second - the lender can also get a judgment against you for the amount you continue to owe plus the costs incurred for the foreclosure action even after the foreclosure is completed. For example, if you owe $250,000 on your home, and it ends up in foreclosure, the lender may end up selling the home for $200,0000. In this case, the lender can get a judgment for $50,000 against you, meaning you legally will STILL owe this money. In this way, the long term financial impacts of a foreclosure can be severe.
• 3. Lastly - your credit history will be adversely affected, usually for a long time. In fact, a foreclosure will remain on your credit history of up to 10 years, and will typically reduce your credit score by 200 points. What this means is that for many years to come it will be hard to get credit, and it will be more expensive to finance other items.

There is no upside to foreclosure, and normally it should be avoided at all costs. But there are options.

Short Sale Process

Instead of a foreclosure, the servicer of your mortgage may consider a short sale, or a “deed in lieu” of foreclosure, or DIL. Both a short sale and a DIL provide an opportunity for borrowers and servicers to avoid the foreclosure process.

In a short sale, a servicer allows the borrower to sell the property at its current value, even if the sale nets less than the total amount owed on the mortgage. For example, even if you owe $250,000 on your mortgage, the lender may accept $200,000 through a short sale agreement. Approval of a short sale requires the borrower to list and actively market the home at its fair market value. It’s recommended that you work with a Realtor or Broker who is experienced in the short sale process.

In late 2009, the government released a series of guidelines and incentives as part of the Home Affordable Foreclosure Alternatives. Many lenders are participating in this program, or have similar options available for borrowers who are considering a short sale.

Here are the key elements of the Short Sale program:

• 1. PreApproved Short Sales are allowed – meaning you can find out BEFORE listing the property how much the lender will accept in a short sale. This is a key provision meant to reduce the frustration of finding a willing buyer only to find out later that the lender will not accept an offer that is below a certain amount.
• 2. Release of Liability – this allows the seller to be released from liability for the first mortgage debt even when the amount of the sale does not fully pay off the loan.
• 3. Provides up to $1500 to the servicer for processing of the short sale, as well as up to $6,000 towards any second mortgage.
• 4. And finally, it provides $3000 for borrower relocation assistance. This financial incentive, often referred to as “cash for keys” give you money at the end of the transaction to help you transition to your new home.

Now, if you actively market the property but are unable to sell it within the agreed upon time period, a servicer may consider a Deed in Lieu of Foreclosure. With a DIL, the borrower voluntarily transfers ownership of the property to the servicer – provided the title is free and clear.

Short sales and DILs are complex transactions and involve careful coordination and close cooperation among a number of parties. Each lender may have different rules, and each borrower’s circumstances are different.

If you have both a first AND second mortgage on your home, then the situation can be more complicated. In fact, some second lien holders will NOT release the liability, and may ultimately pursue any unpaid balance.

Short Sale Advantages

But there are significant benefits of pursuing a Short Sale or Deed in Lieu process.

• 1. You retain some control over the timing of when you give up the home. With a foreclosure, the timing is dictated by the courts, while a short sale allows you to live in the home, and work with the Realtor and Lender to get the home sold.
• 2. Second – in most cases, there is no judgment against you if the home sells for LESS than the balance of the first mortgage. The lender often accepts the reduced amount, and you have no remaining liability. This part can be complicated if you have a second mortgage or other liens on the home. But, this is a MUCH better scenario to a foreclosure, where the loss to the lenders--and thus your potential liability are not known until AFTER you move from the home.
• 3. The impact on your credit is typically not as severe as with a foreclosure. In fact, your credit report will show that your loan was paid in a “partial settlement” which is better than foreclosure. Experts also believe that a short sale can reduce your credit score 125 points, which definitely impacts your credit history. But that is much better than a foreclosure, where your credit score may be lowered 200 points. The key issue for homeowners is to start the Short Sale Process early, so you can be prepared to work with the lender and the buyer, as well as the realtor and other parties involved. It could result in a much better outcome for your financial future .

Second Mortgage, Home Equity Loans, and other Liens

The existence of second mortgages or other liens on your home can complicate the process of completing a short sale. It’s important to understand that all the parties who have an interest in the property have to be involved in the ultimate disposition-- or sale of the property.

Let’s review examples of other lien holders and how they might be involved in a short sale transaction.

2nd mortgage – perhaps you obtained two loans when you originally purchased or refinanced your home. Or you received a home equity line of credit or HELOC that now has a balance. When you pursue a short sale, both lenders have to provide permission to sell the home for LESS than the amount owed on the home. In some cases, the first mortgage holder may approve the short sale for a certain amount, agreeing to accept less than the total amount of the mortgage. However, the second lien holder may NOT accept the lower amount and may pursue additional payment during the short sale, or even after the property is sold.

You may also have other liens on the home. For example, any unpaid homeowners fees may need to be paid, or perhaps you have an unpaid tax lien. In some cases, these can also be negotiated as part of the short sale transaction, which is why it’s so important to start early.

Remember – all the lien holders currently have the right to try and collect the amount owed on the home. So, if you simply go to foreclosure, those same parties will continue to have those rights. A short sale allows for an orderly sale of the property, to at least try to reduce the amount to be paid to the parties, and to reduce the long term impact to your financial future.

How Does a Short Sale Work?

Pre-Sale— The lender will start by approving a list price for your home or give you the acceptable sale proceeds. This is the minimum amount that the lender must receive from the sale of the home.

The lender will also identify the sales costs, which includes the Realtor or Broker Commissions and closing costs that may be deducted from the final sale price.

It is important to remember that a Short Sale has to be coordinated with both the FIRST mortgage lender, AND any secondary lien holder that may exist.

You then list your property like any home sale with a local real estate broker, at the approved price.

When you get an offer on your home, you submit the required documentation and the lender will approve the sale if it conforms with the price and other terms established in the PreSale agreement.

Once the sale closes, the Lender will release you from all responsibilities of repaying your mortgage balance. Please note that other lien holders, like your second mortgage lender, or HomeOwners Association also have to agree to a certain amount.

So, after the sale is complete, you will receive $3000 to help pay some of your moving expenses. The check will be paid to you by the settlement agent as part of the closing.

Homeowner Responsibilities

During the short sale, each party has specific responsibilities. Here is a quick summary of the homeowner’s responsibilities during the Short Saleprocess:

• 1. If you are approved for the Short Sale Program, you should carefully review the approval letters and return to the lender with the information requested. This is an important document so be sure to review promptly and be sure you understand all the requirements.
• 2. You need to keep your house and your property in good condition and cooperate with your Realtor or Broker to show it to potential buyers.
• 3. In some cases, you may be asked by the lender to make partial mortgage payments until your house is sold and title is transferred. While you are selling your house, you still legally owe the full amount of your current monthly mortgage payment.
• 4. Be able to provide the buyer of your home with clear title. To start, determine if you have other loans, judgments or liens secured by your home, such as a home equity line of credit or a second mortgage. You may also owe money for home owners association dues. If these liens exist, you will need to either pay these loans off in full, or negotiate with the lien holders to release them before the closing date. You can get help from your broker or Short Sale professional to negotiate with the other lien holders. If you have these types of liens or loans on your home, please gather any paperwork you have, such as your last statement-- and send it to the lender when you return the signed Agreement.
• 5. At several stages of the short sale process, such as after an offer is received, you will need to complete some paperwork.

After the Short Sale is complete, there are a few things to keep in mind.

These involve tax issues and credit issues that you might experience.

Tax ISSUES: The difference between the remaining amount of principal you owe and the amount that the lender receives from the sale must be reported to the Internal Revenue Service as debt forgiveness. The IRS rules changed in recent years, allowing you to avoid tax on this forgiven debt in most cases. Also, the amount that you receive for “relocation” expenses may also be reported as income. It’s suggested that you contact the IRS or your tax preparer to determine if you may have any tax liability.

CREDIT: The lenders will follow standard industry practice and report to the major credit reporting agencies that your mortgage was settled for less than the full payment. This will impact your credit rating, although its typically less severe than if your home is foreclosed.

Please note that the short sale is typically not a fast transaction to complete, but it’s one that can be accomplished if you begin the short sale with the lender early on, when you are first trying to sell the home.