In the wake of the housing crisis, lawsuits against lenders, and settlements between government entities and some of the world’s biggest banks, an alphabet soup of loss mitigation programs have emerged and re-emerged.
To help make sense of all of the available loss mitigation programs and how they relate to your situation, I have prepared the below outline. It describes substantially all of the major programs offered on residential loans today. All but one of these loss mitigation programs have the same purpose. That particular one is for the borrower that wants to keep their property but needs assistance to do so. The last program on the list is for borrowers who either prefer not to keep their property; or have accepted that there is no way for them to do so. And, they simply have more interest in avoiding losing the property in a foreclosure sale.
I hope this outline of loss mitigation programs makes the options more digestible and easier to understand.
Programs Designed for Borrowers Wanting to Keep their Home
Table of Contents
I. Home Affordable Modification Program (HAMP)
- Overview
- If you you have a job, but you’re still struggling to make your mortgage payments, you may be eligible for the Home Affordable Modification Program (HAMP®). HAMP may lower your monthly mortgage payments in order to make them more affordable and sustainable for the long-term.
- If you currently occupy your home as your primary residence, we encourage you to contact your mortgage servicer as soon as possible to begin the HAMP evaluation process.
- In an effort to continue to provide meaningful solutions to the housing crisis, effective June 1, 2012, the Obama Administration expanded the population of homeowners that may be eligible for the Home Affordable Modification Program to include homeowners:
- Who are applying for a modification on a home that is not their primary residence, but the property is currently rented or the homeowner intends to rent it.
- Who previously did not qualify for HAMP because their debt-to-income ratio was 31% or lower.
- Then, those who previously received a HAMP trial period plan, but defaulted in their trial payments.
- Lastly, those who previously received a HAMP permanent modification, but defaulted in their payments, therefore losing good standing.
- If you are a homeowner who falls into any of these criteria, you may be eligible for a modification under the expanded criteria.
- You may be eligible for HAMP if you meet all of the following criteria that you:
- Obtained your mortgage on or before January 1, 2009.
- Owe up to $729,750 on your primary residence or single unit rental property
- Owe up to $934,200 on a 2-unit rental property; $1,129,250 on a 3-unit rental property; or $1,403,400 on a 4-unit rental property
- The property has not been condemned
- Have a financial hardship and are either delinquent or in danger of falling behind on your mortgage payments (non-owner occupants must be delinquent in order to qualify).
- Have sufficient, documented income to support a modified payment.
- You must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
I. Principal Reduction Alternative (PRA)
- If your home is currently worth significantly less than you owe on it, MHA’s Principal Reduction Alternative (PRA)’s purpose is to help you by encouraging mortgage servicers and investors to reduce the amount you owe on your home.
- You may be eligible for PRA if (you):
- Fannie Mae or Freddie Mac do not own or guarantee your mortgage.
- Owe more than your home is worth.
- Occupy the house as your primary residence.
- Obtained your mortgage on or before January 1, 2009.
- Your mortgage payment is more than 31 percent of your gross (pre-tax) monthly income.
- Owe up to $729,750 on your 1st mortgage.
- Have a financial hardship and are either delinquent or in danger of falling behind.
- Have sufficient, documented income to support the modified payment.
- Lastly, you must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
- Participating servicers must develop written standards for PRA application. The largest servicers include Bank of America, CitiMortgage, JP Morgan Chase, and Wells Fargo.
III. Second Lien Modification
- If your first mortgage went trough permanent modification under HAMP and you have a second mortgage on the same property, you may be eligible for a modification. Or, principal reduction on your second mortgage as well, through MHA’s Second Lien Modification Program (2MP). 2MP works in tandem with HAMP to provide comprehensive solutions for homeowners with second mortgages to increase long-term affordability and sustainability. If the servicer of your second mortgage is participating, they can evaluate you for a second lien modification.
- You may be eligible for 2MP if you meet all of the following criteria:
- Your first mortgage went trough modification under HAMP.
- And, you must not have been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
- You have not missed three consecutive monthly payments on your HAMP modification.
- Servicers participating in 2MP are:
- Bank of America, NA
- BayviewLoan Servicing, LLC
- CitiMortgage, Inc.
- Community Credit Union of Florida
- GMAC Mortgage, LLC
- Green Tree Servicing LLC
- iServeResidential Lending, LLC
- iServeServicing, Inc.
- J.P.MorganChase Bank, NA
- NationstarMortgage LLC
- OneWestBank
- PennyMacLoan Services, LLC
- PNC Bank, National Association
- PNC Mortgage
- Residential Credit Solutions
- ServisOne Inc., dbaBSI Financial Services, Inc.
- Wells Fargo Bank, NA
IV. FHA Home Affordable Modification Program (FHA-HAMP)
- FHA, VA and USDA all offer mortgage modification programs for struggling homeowners designed to lower monthly mortgage payment to no more than 31 percent of the homeowner’s verified monthly gross (pre-tax) income — making monthly mortgage payments much more affordable. If the Federal Housing Administration (FHA) insures or guarantees a loan that you have, you may be eligible for a program, offered through that government agency.
- For information on FHA and participating servicers, call FHA’s National Servicing Center at (877) 622-8525.
V. USDA & Veteran’s Affairs Home Affordable Modification (VA-HAMP)
- FHA, VA and USDA all offer programs for struggling homeowners that strive to lower your monthly mortgage payment to 31 percent of your verified monthly gross (pre-tax) income — making monthly mortgage payments much more affordable.
- If the Department of Veterans Affairs (VA) insure or guarantee a loan that you have, you may be eligible for a program through that government agency.
VI. Second Lien Modification Program for Federal Housing Administration Loans (FHA-2LP)
- If you have a second mortgage and your first mortgage servicer agrees to participate in FHA Short Refinance, you may be eligible to have your second mortgage on the same home reduced. Or, eliminated through the FHA Second Lien Program (FHA2LP). If your second mortgage servicer agrees to participate, the total amount of your mortgage debt after the refinance cannot exceed 115 percent of your home’s current value.
- You may be eligible for FHA2LP if you meet the following criteria that you:
- Are eligible for FHA Short Refinance.
- Obtained your mortgage on or before January 1, 2009.
- You must not have been convicted within the last 10 years of felony larceny, theft, fraud, forgery, money laundering or tax evasion in connection with a mortgage or real estate transaction.
- Program Availability:
- If the servicer of your first mortgage agrees to an FHA Short Refinance and you have a second mortgage on the same home, the first mortgage servicer will work with the second mortgage servicer to reduce or eliminate the second mortgage.
- More than a dozen mortgage servicers have agreed to review homeowners for FHA2LP when the first mortgage servicer has agreed to a refinance under FHA Short Refinance.
II. Home Affordable Refinance Program (HARP)
- If you’re not behind on your mortgage payments but have been unable to get traditional refinancing because the value of your home has declined, you may be eligible to refinance through the Home Affordable Refinance Program (HARP). HARP’s purpose is to help you get a new, more affordable, more stable mortgage. HARP refinance loans require a loan application and underwriting process, and refinance fees will apply.
- You may be eligible for HARP if you meet all of the following criteria:
- Freddie Mac or Fannie Mae must own or guarantee the mortgage.
- The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
- The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
- The current loan-to-value (LTV) ratio must be greater than 80%.
- The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.
- If Freddie Mac own your loan, you may check your potential eligibility for HARP here.
- If Fannie Mae own your loan, you may check your potential eligibility for HARP here.
VIII. FHA Refinance for Borrowers with Negative Equity (FHA Short Refinance)
- If you’re not behind on your mortgage payments but owe more than your home is worth, FHA Short Refinance may be an option that your mortgage servicer will consider. FHA Short Refinance’s purpose is to help homeowners refinance into more affordable, more stable FHA-insured mortgage. If your current lender agrees to participate in this refinance, they must reduce the amount you owe on your first mortgage to no more than 97.75 percent of your home’s current value.
- You may be eligible for FHA Short Refinance if you meet the following criteria:
- Fannie Mae, Freddie Mac, FHA, VA or USDA do not own or guarantee your mortgage.
- Then, you owe more than your home is worth.
- You are current on your mortgage payments.
- Also, you occupy the house as your primary residence.
- You are eligible for the new loan under standard FHA underwriting requirements.
- Your total debt does not exceed 55 percent of your monthly gross income.
- Lastly, you must not have been convicted within the last 10 years of felony larceny, theft, fraud, forgery, money laundering or tax evasion in connection with a mortgage or real estate transaction.
Affordable Unemployment Program (UP)
- If you are unemployed and depending on your situation, MHA’s Home Affordable Unemployment Program (UP) may reduce your mortgage payments to 31 percent of your income or suspend them altogether for 12 months or more.
- You may be eligible for UP if you meet all of the following criteria that you:
- Do not have a job and you are eligible for unemployment benefits.
- Occupy the house as your primary residence.
- Have not previously received a HAMP modification.
- Obtained your mortgage on or before January 1, 2009.
- Owe up to $729,750 on your home.
- More than 100 HAMP-participating servicers can offer UP to eligible unemployed homeowners.
- You may be required to make a partial payment, not to exceed 31 percent of your verified monthly gross (pre-tax) income including unemployment benefits.
- You will be evaluated for a HAMP mortgage modification at the end of your UP forbearance period if it is available at that time.
- UP is not currently available for homeowners with mortgages held by Fannie Mae and Freddie Mac; however, both have their own forbearance arrangements for unemployed homeowners. Please contact your mortgage servicer to see if you are eligible.
X. Hardest Hit Fund (HHF)
- Early in 2010, Treasury announced that the Hardest Hit Fund® would provide more than $7.6 billion in aid for homeowners; in states hit hardest by the economic crisis. Since then, state housing finance agencies have used the fund to develop programs that stabilize local housing markets and help families avoid foreclosure. Hardest Hit Fund programs complement the Making Home Affordable Program but are not limited to homeowners eligible for Making Home Affordable.
- Hardest Hit Fund programs vary state to state, but may include:
- Mortgage payment assistance for unemployed or underemployed homeowners
- Principal reduction to help homeowners get into more affordable mortgages
- Funding to eliminate homeowners’ second lien loans
- Help for homeowners who are transitioning out of their homes and into more affordable places of residence.
- For more information, visit Florida’s Hardest Hit Fund page or contact your state housing finance agency.
I. FHFA Streamlined Modification Initiative (SMI)
- The SMI has been designed to curb losses to the government-owned Fannie & Freddie by letting borrowers that are behind 3 months or more bypass the notorious red tape and associated with typical loan modifications. However, applicants may still provide documents relating to their financial hardship to save even more money.
- According to the FHFA, the Streamlined Modification Initiative (SMI) will begin July 1, 2013 and expire on August 1, 2015.
- In order to qualify, applicants must be at least 90 days late on their mortgage; have a loan that was first made on or before July 1, 2012; and have less than 20% equity in their home.
- The program is offering fixed interest rates and payment terms of up to 40 years. Some “underwater” borrowers who owe more than their homes are worth will not be required to pay interest on at least some portion of the principal balance.
Program for Borrowers Not Interested or Not Able to Keep their Home
Home Affordable Foreclosure Alternatives Program (HAFA)
- If you can’t afford your mortgage payment and it’s time for you to transition to more affordable housing, the Home Affordable Foreclosure Alternatives (HAFA) program is there for you. HAFA provides two options for transitioning out of your mortgage: a short sale or a Deed-in-Lieu (DIL) of foreclosure. In a short sale, the mortgage company lets you sell your house for an amount that falls “short” of the amount you still owe. Furthermore, in a DIL, the mortgage company lets you give the title back, transferring ownership back to them.
- In either case, HAFA offers benefits that make the transition as favorable as possible:
- Unlike conventional short sales, a HAFA short sale completely releases you from your mortgage debt after selling the property. This means you will no longer be responsible for the amount that falls “short” of the amount you still owe. The servicer guarantees the waiving of the deficiency.
- In a HAFA short sale, your mortgage company works with you to determine an acceptable sale price.
- HAFA has a less negative effect on your credit score than foreclosure or conventional short sales.
- When you close, HAFA may provide $3,000 in relocation assistance.
- You may be eligible for HAFA if you meet all of the following criteria that you:
- Have a documented financial hardship.
- Have not purchased a new house within the last 12 months.
- Your first mortgage is less than $729,750.
- You obtained your mortgage on or before January 1, 2009.
- You must not have been convicted within the last 10 years of felony larceny, theft, fraud, forgery, money laundering or tax evasion in connection with a mortgage or real estate transaction.
- HAFA is available for mortgages that Fannie Mae and Freddie Mac own and guarantee or serviced by over 100 HAMP participating mortgage servicers.
Contact Us
Now that you know of these loss mitigation programs, you know what the next step is.
If you have questions about foreclosure, loan modification, bankruptcy, or other alternatives, please feel free to call my office at 888-886-0020, send an e-mail to emil@fleysherlaw.com, or complete the contact form below.