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If you do not qualify for a loan modification, and foreclosure seems unavoidable, there are steps you can take to make the most of a bad situation. One of these options is arranging with your lender for a Deed in Lieu of Foreclosure.

What does this mean?

It means you hand over the deed, or ownership, of your house to the lender in exchange of clearing your debt. The homeowner loses his home but is left without a debt while the lender takes immediate control of the house.

What advantages does this option have?

In certain circumstances a Deed in Lieu of Foreclosure can have significant advantages for both the lender and the buyer.

1)     The lender can take immediate control over the property. A much more efficient method than foreclosure proceedings that can take years to finish.

2)     The borrower foregoes his home but is left without any debt.

3)     Lenders can save themselves a lot of money in court expenses, time and other complications if they avoid a typical repossession procedure.

4)     Borrowers that avoid a foreclosure will remove the stain on their record and in some cases avoid bankruptcy.

What are the requirements for a Deed in Lieu of Foreclosure to be carried out?

1) The market value of the home must be less than the current balance of the mortgage.

2) There must be no third party credits secured by the home, like a second mortgage or a secured car loan.

Although it might seem counterintuitive for a homeowner to let his home, probably his largest investment, go without anything to show for it, it can be a much better alternative than a long and painful foreclosure. Borrowers don’t have to see their credit score hurt and can start again elsewhere, while lenders can cut their losses and try to make the most of a bad loan without having to continue spending money and resources.

In what circumstances should a homeowner think about handing a Deed in Lieu of Foreclosure?

Obviously, homeowners that are going through financial difficulties and cannot afford their monthly mortgage payments. However if they still have some sort of income then they may well qualify for a home modification or some other option. This path is more suited for homeowners that either cannot afford any kind of loan modification or feel that their home is too underwater, worth less than the mortgage balance, to be worth saving.

How is it done?

Both parties must agree to sign an Agreement in Lieu of Foreclosure. This document transfers ownership to the lender. In some cases the homeowner might pay a certain amount of money to reduce the loan and make sure her credit score is not affected. Once the document is signed the lender will issue a waiver to deficiency judgment, which will be used if the sale of the house is below the value of the mortgage. After this an escrow service executes the agreement; releasing both the lender and the borrower from their mortgage contract.

Related posts:

1. Foreclosure or Bankruptcy, What to Do When Loan Modifications Don’t Work
2. What Is A Foreclosure?
3. What Is A Loan Modification? The Three Keys To Loan Modification Success

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1. Foreclosure or Bankruptcy, What to Do When Loan Modifications Don’t Work
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3. What Is A Loan Modification? The Three Keys To Loan Modification Success

HAMP, the Government’s Loan Modification Program is changing their tune about the paperwork required to apply for a loan modification. Homeowners applying for a loan modification must now include their paperwork before even entering the trial stage.

Previously troubled homeowners could apply for a loan modification trial by simply providing proof of income over the phone. The problems arose when some troubled homeowners either took too long to send the paperwork or could not prove the claims they had made. The Treasury and many servicers claim that this is the cause that the conversion of trials to completed modifications has been so slow.

The Treasury’s response has been to simplify the paperwork required for HAMP conforming loan modifications and require that it is provided before a trial can start. The goal is to accelerate the process and help homeowners to start paying lower mortgage payments sooner.

What are the requirements?

Homeowners that want to apply for a HAMP mortgage modification must provide:

-          Two pay stubs. If they have a job.

-          A completed form that gives permission to the servicer to pull up a tax return.

-          A modification request with a hardship letter included. Hardship letters are documents that explain why you need a modification for your mortgage. The hardship letter must explain what has changed in your circumstances so as to no longer afford your mortgage payments.

When will these changes occur?

The first of June is the official starting date but servicers are allowed to start sooner if they want to. If you are going to apply for a modification you will need the documentation detailed above.

The Benefits.

The plan is that these changes will increase the conversion rate of homeowners on trial modifications to those on completed modifications.

This has been a bone of contention between servicers and homeowners. Servicers complaining at how bad homeowners were at providing the required paperwork and homeowners claiming it was only an excuse.

It must be said that banks that required paperwork for the trial process to start, like GMAC, had much better trial to modification conversion rates. Herb Allison, assistant secretary at Treasury believes that these changes will help all servicers to speed up the whole process.

Let us hope these changes work because HAMP has a long way to go to fulfill its goal of helping 4 million homeowners with affordable mortgages by 2012. Up to date the program has more than 90,000 homeowners on trials and 66,000 homeowners have signed their mortgage modification papers with average savings of around $500 a month.

Although the simplified paperwork requirements will in all likelihood help speed up the process it does seem like speed is the least of HAMP’s troubles, helping the 3,800,000+ troubled homeowners that are neither on trials or have completed modifications does seem to be more of an issue.

Related posts:

1. Loan Modifications Latest Figures, Limbo, Trial Purgatory And Other Horror Stories
2. Wachovia Loan Modifications Help Only 3% and May Damage Your Credit Rating
3. Loan Modifications Double, Treasury And The Obama Administration Optimistic

Related posts:

1. Loan Modifications Latest Figures, Limbo, Trial Purgatory And Other Horror Stories
2. Wachovia Loan Modifications Help Only 3% and May Damage Your Credit Rating
3. Loan Modifications Double, Treasury And The Obama Administration Optimistic

Loan Modifications do not seem to be the solution Government hoped it to be. It is having some success, over 650,000 trial loan modifications, but the floodgates of foreclosure risk homes are not even close to being closed. Of the 650,000 trial loans only 1,711 borrowers got a permanent loan modification. Many experts predict that few of the trial loan modification will work long term and that most troubled borrowers will ultimately foreclose on their homes.

This bleak outlook has made Government and Federal Agencies look elsewhere to provide alternative options to loan modifications. One of these options, Deed for Lease, we mentioned last week and we are going to take a second look at it.

This option which has been kicked around in the nationwide housing crisis debate was finally taken on by Fannie Mae which has started to offer leases of up to 12 months when other avenues to keeping families in their homes, like loan modifications are unsuccessful.  Some like Dean Baker, co-director of the Center for Economic and Policy Research see it as a great step forward in Government policy.

So will Dead for Lease, renting your own home be a viable option for struggling homeowners?

It is certainly an interesting idea. On one level it could be seen as a win-win option for pretty much everybody, at least in certain circumstances.

Win-win, because struggling homeowners get a chance to stay in their home when it has been settled that they can’t afford their mortgage but can afford the market rent of their home. It would also be good news for the neighborhoods struggling homeowners live in as it would avoid the drop in house prices foreclosed ridden neighborhoods are characterized by.

Even lenders may find this option appealing as an alternative to selling properties at cut rate prices. Lenders could turn landlords for as long as the market takes to turn around when they could sell the properties.

However few are predicting an avalanche of copy cat programs following Fannie Mae’s Deed for Lease program. Why? Two main reasons stand out.

1)      Legal liability. Once a bank turns landlord he acquires responsibilities towards his tenants, the previous homeowners. The tenants could demand work being carried out on their home if there are cases of mold, Chinese drywall or other hazards in the home.

2)      Banks are lenders not landlords. Most business like to stick to what they do best and not get into others types of business. As Chase spokesman Tom Kelly is reported to have said: “We’re not really equipped to be landlords”.  Lenders in the U.S are sitting on nearly half a million repossessed homes. The operation required to manage leases on such a volume of homes does not seem attractive to many lenders at this moment. Most prefer to dump the properties on the market even if it is a buyer’s market and prices are very low.

Fannie Mae has subcontracted landlord management duties to another country but it is doubtful other companies will follow suit.

3)      Leasing properties is often not as profitable as selling, especially when your business is not geared to managing a rental operation.

These reasons would indicate that Deed for Lease will not be a big deal in the mortgage market, at least for now. However there is no reason it won’t take off later on. There are many examples of housing policies starting small with federal housing agencies (like Fannie Mae) and then exploding to take nation and industry wide importance. A good example of this are loan modifications.

Many economists predict that loan modifications will not stop the avalanche of foreclosures caused by an ever increasing rate of unemployment and a nationwide drop in home prices. This might provide a chance for more attention to the idea of renting homes back to previous owners if the market is so saturated selling is no longer a viable option.

Related posts:

1. Loan Modification Alternatives: Is Renting Your Home A Viable Option
2. Loan Modification Alternatives: Short Sale Your Home
3. $75 Billion Making Home Affordable Loan Modification Program Gets To Work

Related posts:

1. Loan Modification Alternatives: Is Renting Your Home A Viable Option
2. Loan Modification Alternatives: Short Sale Your Home
3. $75 Billion Making Home Affordable Loan Modification Program Gets To Work

Loan Modifications do not seem to be the solution Government hoped it to be. It is having some success, over 650,000 trial loan modifications, but the floodgates of foreclosure risk homes are not even close to being closed. Of the 650,000 trial loans only 1,711 borrowers got a permanent loan modification. Many experts predict that few of the trial loan modification will work long term and that most troubled borrowers will ultimately foreclose on their homes.

This bleak outlook has made Government and Federal Agencies look elsewhere to provide alternative options to loan modifications. One of these options, Deed for Lease, we mentioned last week and we are going to take a second look at it.

This option which has been kicked around in the nationwide housing crisis debate was finally taken on by Fannie Mae which has started to offer leases of up to 12 months when other avenues to keeping families in their homes, like loan modifications are unsuccessful.  Some like Dean Baker, co-director of the Center for Economic and Policy Research see it as a great step forward in Government policy.

So will Dead for Lease, renting your own home be a viable option for struggling homeowners?

It is certainly an interesting idea. On one level it could be seen as a win-win option for pretty much everybody, at least in certain circumstances.

Win-win, because struggling homeowners get a chance to stay in their home when it has been settled that they can’t afford their mortgage but can afford the market rent of their home. It would also be good news for the neighborhoods struggling homeowners live in as it would avoid the drop in house prices foreclosed ridden neighborhoods are characterized by.

Even lenders may find this option appealing as an alternative to selling properties at cut rate prices. Lenders could turn landlords for as long as the market takes to turn around when they could sell the properties.

However few are predicting an avalanche of copy cat programs following Fannie Mae’s Deed for Lease program. Why? Two main reasons stand out.

1)      Legal liability. Once a bank turns landlord he acquires responsibilities towards his tenants, the previous homeowners. The tenants could demand work being carried out on their home if there are cases of mold, Chinese drywall or other hazards in the home.

2)      Banks are lenders not landlords. Most business like to stick to what they do best and not get into others types of business. As Chase spokesman Tom Kelly is reported to have said: “We’re not really equipped to be landlords”.  Lenders in the U.S are sitting on nearly half a million repossessed homes. The operation required to manage leases on such a volume of homes does not seem attractive to many lenders at this moment. Most prefer to dump the properties on the market even if it is a buyer’s market and prices are very low.

Fannie Mae has subcontracted landlord management duties to another country but it is doubtful other companies will follow suit.

3)      Leasing properties is often not as profitable as selling, especially when your business is not geared to managing a rental operation.

These reasons would indicate that Deed for Lease will not be a big deal in the mortgage market, at least for now. However there is no reason it won’t take off later on. There are many examples of housing policies starting small with federal housing agencies (like Fannie Mae) and then exploding to take nation and industry wide importance. A good example of this are loan modifications.

Many economists predict that loan modifications will not stop the avalanche of foreclosures caused by an ever increasing rate of unemployment and a nationwide drop in home prices. This might provide a chance for more attention to the idea of renting homes back to previous owners if the market is so saturated selling is no longer a viable option.

Related posts:

1. Loan Modification Alternative: Is Renting Your Home a Good Option
2. Loan Modification Alternatives: Short Sale Your Home
3. Loan Modification Alternatives: Wells Fargo Interest Only Loans

Related posts:

1. Loan Modification Alternative: Is Renting Your Home a Good Option
2. Loan Modification Alternatives: Short Sale Your Home
3. Loan Modification Alternatives: Wells Fargo Interest Only Loans