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Loss Mitigation Programs Overview

Written by Emil Fleysher | May 5, 2013 | Mortgage Loan Modification

Loan Modification Programs, Loss Mitigation Programs, Short Sale Programs

The “Alphabet Soup” of Loss Mitigation Programs currently available can be confusing and overwhelming. This article makes an attempt at outlining and simplifying the list of programs.

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 has emerged and re-emerged. To help make sense of all of the available programs and how they relate to your situation, I have prepared the below outline which describes substantially all of the major programs being offered on residential loans today. All but one of these programs are designed for the borrower that wants to keep their property but needs assistance to do so. The last program on the list is designed for borrowers who either prefer not to keep their property or have accepted that there is no way for them to do so and are simply interested in avoiding losing the property in a foreclosure sale. I hope this outline makes the options more digestible and easier to understand.

Programs Designed for Borrowers Wanting to Keep their Home

I. Home Affordable Modification Program (HAMP)

  1. Overview
    1. If you are not unemployed, 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.
    2. 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.
    3. 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:
      1. 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.
      2. Homeowners who previously did not qualify for HAMP because their debt-to-income ratio was 31% or lower.
      3. Homeowners who previously received a HAMP trial period plan, but defaulted in their trial payments.
      4. Homeowners who previously received a HAMP permanent modification, but defaulted in their payments, therefore losing good standing.
    4. If you are a homeowner who falls into any of these criteria, you may be eligible for a modification under the expanded criteria.
  2. You may be eligible for HAMP if you meet all of the following criteria:
    1. You obtained your mortgage on or before January 1, 2009.
    2. You owe up to $729,750 on your primary residence or single unit rental property
    3. You 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
    4. The property has not been condemned
    5. You 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).
    6. You have sufficient, documented income to support a modified payment.
    7. 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.

II. Principal Reduction Alternative (PRA)

  1. If your home is currently worth significantly less than you owe on it, MHA’s Principal Reduction Alternative (PRA) was designed to help you by encouraging mortgage servicers and investors to reduce the amount you owe on your home.
  2. You may be eligible for PRA if:
    1. Your mortgage is not owned or guaranteed by Fannie Mae or Freddie Mac.
    2. You owe more than your home is worth.
    3. You occupy the house as your primary residence.
    4. You obtained your mortgage on or before January 1, 2009.
    5. Your mortgage payment is more than 31 percent of your gross (pre-tax) monthly income.
    6. You owe up to $729,750 on your 1st mortgage.
    7. You have a financial hardship and are either delinquent or in danger of falling behind.
    8. You have sufficient, documented income to support the modified payment.
    9. 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.
  3. Participating servicers are required to develop written standards for PRA application. The largest servicers include Bank of America, CitiMortgage, JP Morgan Chase, and Wells Fargo.

III. Second Lien Modification Program (2MP)

  1. If your first mortgage was permanently modified 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.
  2. You may be eligible for 2MP if you meet all of the following criteria:
    1. Your first mortgage was modified under HAMP.
    2. 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.
    3. You have not missed three consecutive monthly payments on your HAMP modification.
  3. Servicers participating in 2MP are:
    1. Bank of America, NA
    2. BayviewLoan Servicing, LLC
    3. CitiMortgage, Inc.
    4. Community Credit Union of Florida
    5. GMAC Mortgage, LLC
    6. Green Tree Servicing LLC
    7. iServeResidential Lending, LLC
    8. iServeServicing, Inc.
    9. J.P.MorganChase Bank, NA
    10. NationstarMortgage LLC
    11. OneWestBank
    12. PennyMacLoan Services, LLC
    13. PNC Bank, National Association
    14. PNC Mortgage
    15. Residential Credit Solutions
    16. ServisOne Inc., dbaBSI Financial Services, Inc.
    17. Wells Fargo Bank, NA

IV. FHA Home Affordable Modification Program (FHA-HAMP)

  1. 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 you have a loan that is insured or guaranteed by the Federal Housing Administration (FHA), you may be eligible for a program offered through that government agency.
  2. 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)

  1. 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.
  2. If you have a loan that is insured or guaranteed by the Department of Veterans Affairs (VA), you may be eligible for a program through that government agency.

VI. Second Lien Modification Program for Federal Housing Administration Loans (FHA-2LP)

  1. 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.
  2. You may be eligible for FHA2LP if you meet the following criteria:
    1. You are eligible for FHA Short Refinance.
    2. You obtained your mortgage on or before January 1, 2009.
    3. 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.
  3. Program Availability:
    1. 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.
    2. 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.

VII. Home Affordable Refinance Program (HARP)

  1. 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 is designed 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.
  2. You may be eligible for HARP if you meet all of the following criteria:
    1. The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
    2. The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
    3. 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.
    4. The current loan-to-value (LTV) ratio must be greater than 80%.
    5. The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.
  3. If your loan is owned by Freddie Mac, you may check your potential eligibility for HARP here.
  4. If your loan is owned by Fannie Mae, you may check your potential eligibility for HARP here.

VIII. FHA Refinance for Borrowers with Negative Equity (FHA Short Refinance)

  1. 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 is designed to help homeowners refinance into more affordable, more stable FHA-insured mortgage. If your current lender agrees to participate in this refinance, they will be required to reduce the amount you owe on your first mortgage to no more than 97.75 percent of your home’s current value.
  2. You may be eligible for FHA Short Refinance if you meet the following criteria:
    1. Your mortgage is not owned or guaranteed by Fannie Mae, Freddie Mac, FHA, VA or USDA.
    2. You owe more than your home is worth.
    3. You are current on your mortgage payments.
    4. You occupy the house as your primary residence.
    5. You are eligible for the new loan under standard FHA underwriting requirements.
    6. Your total debt does not exceed 55 percent of your monthly gross income.
    7. 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.

IX. Home Affordable Unemployment Program (UP)

  1. 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.
  2. You may be eligible for UP if you meet all of the following criteria:
    1. You are unemployed and eligible for unemployment benefits.
    2. You occupy the house as your primary residence.
    3. You have not previously received a HAMP modification.
    4. You obtained your mortgage on or before January 1, 2009.
    5. You owe up to $729,750 on your home.
  3. More than 100 HAMP-participating servicers can offer UP to eligible unemployed homeowners.
  4. 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.
  5. You will be evaluated for a HAMP mortgage modification at the end of your UP forbearance period if it is available at that time.
  6. 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)

  1. 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.
  2. Hardest Hit Fund programs vary state to state, but may include:
    1. Mortgage payment assistance for unemployed or underemployed homeowners
    2. Principal reduction to help homeowners get into more affordable mortgages
    3. Funding to eliminate homeowners’ second lien loans
    4. Help for homeowners who are transitioning out of their homes and into more affordable places of residence.
  3. For more information, visit Florida’s Hardest Hit Fund page or contact your state housing finance agency.

XI. FHFA Streamlined Modification Initiative (SMI)

  1. 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.
  2. According to the FHFA, the Streamlined Modification Initiative (SMI) will begin July 1, 2013 and expire on August 1, 2015.
  3. 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.
  4. 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)

  1. 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 designed 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. In a DIL, the mortgage company lets you give the title back, transferring ownership back to them.
  2. In either case, HAFA offers benefits that make the transition as favorable as possible:
    1. 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 deficiency is guaranteed to be waived by the servicer.
    2. In a HAFA short sale, your mortgage company works with you to determine an acceptable sale price.
    3. HAFA has a less negative effect on your credit score than foreclosure or conventional short sales.
    4. When you close, HAFA may provide $3,000 in relocation assistance.
  3. You may be eligible for HAFA if you meet all of the following criteria:
    1. You have a documented financial hardship.
    2. You have not purchased a new house within the last 12 months.
    3. Your first mortgage is less than $729,750.
    4. You obtained your mortgage on or before January 1, 2009.
    5. 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.
  4. HAFA is available for mortgages that are owned or guaranteed by Fannie Mae and Freddie Mac or serviced by over 100 HAMP participating mortgage servicers.

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.

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Any information on this website is not intended to be communicated as legal advice. All information contained on this site is general and intended for information purposes only. For detailed legal advice regarding your loan modification, foreclosure, and/or bankruptcy needs, please schedule an appointment with the attorney. The Law Office of Emil Fleysher, P.A. is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.