Second Mortgage Archives – Refinance – Mortgage Refinancing Rates And Information

Loan Modifications Alternatives: HAFA Starts Its New Program Today

April 5th, 2010 No comments

Today HAFA, also known as the Home Affordable Foreclosure Alternatives starts to work. What will it mean for troubled homeowners? For a start the program increases Treasury’s contribution to homeowners from $1,500 to $3,000, while the contribution for junior lien holders gets a rise from $3,000 to $6,000.

Why is Treasury looking for different ways to give money away? Because the previous ways do not seem to be working. Loan modifications sponsored by the HOPE program also include juicy contributions by Treasury to both homeowners and servicers, but that does not seem to have made much of a difference. The government is now trying to look into short sales as a more pragmatic way of dealing with the wave of foreclosures that is hitting the housing market.

HAFA is designed to speed up the process for homeowners that are seeking for alternative ways to foreclosure, but do not qualify for a loan modification. It is also a smart option for homeowners that are so underwater they do not want to even apply for a loan modification, and just want to get rid of a bad investment with the minimum damage to their credit rating.

What does the program offer? The program principally provides extra incentives to homeowners, servicers and junior lien holders to fast track a short sale application. For instance a homeowners that undergoes a short sale on their home can receive up to $3,000 for their trouble. However, this is not the most interesting feature of this new scheme. Short sales has always been a better option than foreclosing on your home, most homeowners can be helped to understand that it is in their best interest to short sale if they cannot get a loan modification and are going to foreclose on their home.

The problem is that troubled homeowners often have a second mortgage on their property. These secondary mortgage lenders are called junior lien holders. They can stall the short sale process, and often do if they feel there will not be enough money to pay them once the house or property is sold. HAFA looks to give junior lien holders an extra incentive by giving them up to $6,000 if they agree to let the short sale proceed.

This program indicates two things. First the government seems to be changing gears in their pursuit of stabilizing the housing market. The initial focus on providing loan modifications to eligible homeowners is changing. The HOPE loan modification program continues, but the government seeks to complement it by encouraging alternatives like short sales to those that are not eligible for a loan modification. Second, the Obama administration is finally looking at the real issue, most troubled homeowners are in trouble not because their mortgage interests are too high, but because they do not have a job, or enough income to pay a mortgage. It also takes into account solvent homeowners that simply want to let their homes go, and provides them a cleaner way to break their mortgage contract.

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Deed In Lieu of Foreclosure, The Last Resort Loan Modification

February 19th, 2010 No comments

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.

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