Home Affordable Foreclosure Alternatives Program – What You Need to Know

Home-Affordable-Foreclosure-Alternatives-150x150Not being able to afford your mortgage anymore can be a stressful experience. Knowing that you will eventually have to abandon your home and move again is not pleasant, especially knowing a foreclosure will leave a large black spot on your credit report. Fortunately, the Home Affordable Foreclosure Alternatives (HAFA) program offers home owners who are facing imminent foreclosure two options, which can make this experience more bearable. HAFA helps home owners who are eligible by providing protection and money if they decide to do a short sale or Deed-in-Lieu of foreclosure.

The Home Affordable Foreclosure Alternatives program is designed to help borrowers and their lenders to work together to avoid foreclosure. Lenders, like home owners, want to avoid foreclosure, because it’s a long and expensive process. The alternatives to foreclosure that HAFA offers are much more attractive for both parties involved.

Benefits of Home Affordable Foreclosure Alternatives

The HAFA program gives home owners the chance to avoid foreclosure by performing a short sale, which means selling the home for less than you owe to your lender, or giving the home back to your lender, known as a Deed-in-Lieu of foreclosure. Here are the most important benefits that this program offers:

  • After completing a short sale through HAFA, you will be free from your mortgage debt, unlike when you perform a regular short sale. The difference between what you owe and what your home sold for will be waived.
  • After closing, the Home Affordable Foreclosure Alternatives program may offer you $3,000 in relocation assistance, if you are eligible.
  • You are entitled to free advice from a professional, such as a HUD-approved housing counselor or a licensed real estate agent.
  • Lenders work with you to determine a good short sale price and are required to let you try to sell your home through a short sale or accept a Deed-in-Lieu of foreclosure before foreclosing on your property.
  • When using the HAFA program, your credit score won’t take as big of a hit as it would if you did a conventional short sale.

HAFA Eligibility Requirements

The first step to qualifying for the Home Affordable Foreclosure Alternatives Program is to apply to HAMP, Home Affordable Modification Program. In order to qualify for the HAMP program, you will have to meet the following criteria:

  • The home must be your primary residence.
  • Your mortgage must have originated before January 1, 2009.
  • The mortgage loan amount must be less than $729,750.

If you don’t meet the qualification criteria for HAMP, then your best choice is finding a short sale agent to assist you. If you are eligible for HAMP, it doesn’t guarantee that you will qualify. However, if you want to do a short sale, then being eligible but not qualifying is good news. If you are eligible, but the Home Affordable Modification Program turns you down, then you can qualify for HAFA. You can also get accepted into HAMP, but stop making mortgage loan modification payments in order to be able to apply for HAFA.

You can find out if you qualify for the Home Affordable Foreclosure Alternatives program by simply speaking to your lender. Foreclosure is hard on your lender as well, so they will try to avoid it and give you other options. Fortunately, the government is also willing to help through programs like HAFA, which are designed to help you get through a difficult period of your life much easier.

How HARP 3.0 Could Help with Underwater Mortgages

HARP 3.0- 150x150Originally, the Home Affordable Refinance Program (HARP) was created to help responsible homeowners that were current on their mortgages but owed more than the market value of their homes. With the next installment, HARP 2.0 waived the loan-to-value requirements and provided more affordable mortgage refinancing solutions to more than one million U.S. households. HARP 3.0, which has been introduced as a bill but has not passed as of yet, would allow all homeowners whose mortgages are not backed by Freddie Mac or Fannie Mae to refinance their underwater properties. The new and improved program would offer much needed assistance to more homeowners than previous installments of the HARP program.

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Homeowners Who Would Benefit from HARP 3.0

  • A self-employed homeowner who borrowed their original mortgage from their stated income but now wants to verify their income through federal tax returns
  • A jumbo mortgage homeowner who lives in a high-cost area and whose original mortgage was anywhere between $417,000 and $625,000
  • A subprime borrower who has responsibly met their current mortgage terms and can accurately verify all of their income and assets
  • A wage earner who used their stated income or stated asset mortgage for convenience reasons
  • A prime borrower who used a subprime mortgage because it was relatively cheaper in comparison to a conforming mortgage
  • An Alt-A borrower who has tremendously improved their low FICO scores from the mortgage origination date

Proposed Changes to HARP Program with HARP 3.0

  • Eliminating all upfront fees and appraisal costs
  • Improving the marketplace competition since it requires the same underwriting standards for both servicers and non-servicers
  • Penalizing mortgage insurance providers and second lien holders who try to prevent homeowners from refinancing their first mortgages
  • Streamlining the refinance process by removing the requirement of providing employment or income documentation
  • Extending the streamlined refinancing provided under HARP 2.0 to GSE borrowers having loans that took effect prior to June 1, 2010. This is an improvement from the HARP 2.0 eligibility guidelines that restricts borrowers with Freddie Mac or Fannie Mae loans closed before June 1, 2009

Improvements to HARP Program

  • Lower monthly repayments. HARP 3.0 calls for lower mortgage rates for borrowers- under the 4 percent rate that reigned in 2012. Households would save around 30 to 40 percent through mortgage refinancing at these lower rates. When announcing the program in January of last year, President Obama also said that it would enable homeowners to save about $250 per month on the principal.
  • Ease in refinancing. The program would eliminate the tendency of some lenders denying borrowers of nonconventional loans for refinance plans. President Obama pushed for new guidelines before his reelection that would enable a homeowner with an underwater mortgage to modify their loan program in order to suit their financial situation.
  • Fewer requirements to qualify. Any underwater homeowner who is current on their existing mortgage with no other residential property could choose between a 30-year fixed rate mortgage at 5 percent and a 15-year fixed rate mortgage at 4 percent. All types of loans qualify. It does not have to be secured by Freddie Mac or Fannie Mae, nor does it have to be originated before May 31, 2009.
  • Fewer foreclosures. Underwater homeowners risk foreclosure in their current mortgage programs. However, HARP 3.0 would loosen the grip of those programs, thus enabling more homeowners to qualify. This would also reduce the number of foreclosures and stimulate growth in the economy.

The bill was presented to no avail in 2012, but was reintroduced by Democratic senators in early 2013. With significant support from housing and related industry heavyweights like National Association of Home Builders and Mortgage Bankers Association, as well as a Democratic-controlled Senate, the bill has a very good chance of moving forward.

An Overview of The Obama Government Refinance Program

MHA_Vert_LogoSM1-150x150President Obama is the first to admit that his earlier attempts at providing housing relief have been less than successful, but he hopes this proposal will have the desired impact for individual Americans, and the economy as a whole. The goals of the proposal, known as MHA (Making Home Affordable), focus on preventing foreclosures on people’s homes, stabilizing the nation’s housing market, and improving the country’s economy. Read on to learn about this program and see about its chances of passing legislation.

The Politics of Foreclosure

For individual consumers and homeowners, the issue of housing relief is concrete and personal. People facing the loss of their family homes have little patience for the rhetoric and wrangling of politicians. For many politicians (whose own homes are secure), the matter  is more abstract—less a humanitarian issue than an opportunity to air sound bytes to replay at re-election time.

Mitt Romney, the governor of Massachusetts and recent presidential candidate, went so far as to recommend that the record-breaking foreclosure rate should be left alone to “run its course and hit the bottom.” Obama countered with the argument that it is morally irresponsible to stand by and let “struggling, responsible homeowners” bear the brunt of the nation’s economic crisis. For these individuals, the stakes are too high.

The number of individuals facing crisis are staggering. The rate of foreclosure in this country have never been this high. One quarter of Americans with mortgages (approximately eleven million all told) now owe more than the homes are currently worth, a situation known as “being underwater.”

At the same time, most banks are hesitant to offer refinancing to people whose homes are underwater. Thirty million mortgages—approximately half of all home loans in the United States—are held by non-government lenders who are not refinancing underwater homeowners.

The Proposed Legislation

If Obama’s plan passes the legislature, eligible homeowners would be given the option of refinancing mortgages through the Federal Housing Administration (FHA). The FHA itself would guarantee the refinancing loans, and the program would be funded by fees imposed on the large banks that are currently refusing to refinance risky home loans.

Many of the home loans that are now in trouble resulted from complaisant screening policies by those same banks which approved loans for consumers without even demanding proof of income sufficient to make the loan payments.

Challenges and Down Sides to the Legislation

This proposal comes with a ten billion dollar price tag, and Obama essentially intends to send the bill to the nation’s biggest banks. A fee imposed on large banks would cover the cost, but even Democrats have vetoed this approach in the past, so getting this legislation passed is likely to be rough going.

If the legislation were to pass, its impact will be limited in scope. It does not apply to those consumers who are most in danger of foreclosure: those who have borrowed money and fallen behind on the mortgage payments. To qualify for the program, a homeowner must have stayed current on the last six months’ payments, and missed no more than one payment in the previous six months.