The Government & Mortgage Refinance

Understand Making Home Affordable, the Government Refinance Plan, and How it Applies to You.

In response to the turmoil in the financial markets and housing industry in 2008, the Obama Administration implemented the Financial Stability Plan in February 2009. A key component was the Making Home Affordable plan, which included four programs to help struggling homeowners.

The first is the Home Affordable Modification Program (HAMP), which gives incentives and guidelines for mortgage servicers to modify existing mortgages. The second is the Home Affordable Refinance Program (HARP), which is a set of guidelines and government incentives for mortgage refinances. Third is the Home Affordable Unemployment Program (UP), which helps by giving assistance to homeowners who are unemployed temporarily. Lastly, there is the Home Affordable Foreclosure Alternatives Program (HAFA), which provides alternatives to foreclosure by giving incentives to mortgage servicers to encourage short sales.

Home Affordable Refinance Program (HARP)

The government refinance mortgage program known as the Home Affordable Refinance Program (HARP) allows homeowners facing difficulties refinancing their mortgage through conventional methods to apply for a refinance of their mortgage. A homeowner that is current with their monthly payments but unable to refinance due to a drop in the value is the typical prime candidate for the HARP program. The ultimate goal is to allow a homeowner to do a mortgage refinance for a lower interest rate and overall monthly payment. The following are criteria outlining eligibility for a government refinance mortgage under the HARP program:

• You are the owner-occupant of a one- to four-unit home.
• The loan on your property is owned or guaranteed by Fannie Mae or Freddie Mac.
• At the time you apply, you are current on your mortgage payments ("Current" generally means that you have not been more than 30-days late on your mortgage payment in the last 12 months, you have never missed a payment).
• The amount you owe on your first lien mortgage does not exceed 125% of the current market value of your property.
• You have a reasonable ability to pay the new mortgage payments.
• The refinance improves the long term affordability or stability of your loan.

Home Affordable Modification Program (HAMP)

Homeowners that are delinquent with their mortgage payment, or do not meet the criteria of HARP, can apply for the Home Affordable Modification Program (HAMP). HAMP is an alternative to a government refinance mortgage in that it involves mortgage loan servicers modifying the terms and conditions of first lien mortgages. The following are criteria outlining eligibility for a loan modification under HAMP:

• Be the owner-occupant of a one- to four-unit home.
• Have an unpaid principal balance that is equal to or less than:
  • 1 Unit: $729,750
  • 2 Units: $934,200
  • 3 Units: $1,129,250
  • 4 Units: $1,403,400
• Have a first lien mortgage that was originated on or before January 1, 2009.
• Have a monthly mortgage payment (including taxes, insurance, and home owners association dues) greater than 31% of you monthly gross (pre-tax) income.
• Have a mortgage payment that is not affordable due to a financial hardship that can be documented.
• Only a mortgage loan servicer will be able to inform you if you qualify.

Second Lien Modification Program (2MP)

Homeowners struggling with their monthly mortgage payments on their second mortgage, as well as their first, can apply for the Second Lien Modification Program (2MP), which works in conjunction with HAMP. The goal of the program is identical to HAMP, in that it is designed to lower monthly payments on the second mortgage so that homeowners will be able to afford their monthly payments.

Home Affordable Foreclosure Alternatives Program (HAFA)

The Home Affordable Foreclosure Alternatives Program (HAFA) provides two alternatives to foreclosure to a homeowner that is in financial distress, and delinquent on their mortgage payments. The two options include Deed-in-Lieu of Foreclosure and and Short Sale.

Deed-in-Lieu of Foreclosure

In a deed in lieu of foreclosure, the property owner gives the property to the lender voluntarily in exchange for the lender canceling the loan. The item transferred is the deed to the property. The lender promises not to initiate foreclosure proceedings, and to terminate any foreclosure proceedings already underway. The lender may or may not agree to forgive any deficiency balance that results from the sale of the property.

Short Sale

Through a short sale the lender agrees to accept less than the balance owed on the mortgage at sale. The deficiency balance is forgiven, typically.

Eligibility Requirements for HAFA

The homeowner must be evaluated for HAFA within 30 calendar days of the following:

• The borrower does not qualify for HAMP.
• The borrower does not successfully complete a HAMP Trial Period.
• The borrower is delinquent on a HAMP modification.
• The borrower requests a short sale or Deed-in-lieu of Foreclosure.

The prerequisite to apply for HAFA is that the mortgage loan servicer must consider the homeowner for all other programs first.