Just a few missed mortgage payments can start foreclosure proceedings, and before you know it the home you’ve worked so hard to buy can be taken away from you. Worse yet, you may still end up owing money if the sale of the home doesn’t cover your loan balance, and a Foreclosure hits your credit like a freight train. If you’re threatened with Foreclosure you may be able to prevent this scenario, but you’ve got to act fast.
- The first loss mitigation option to consider should always be the Home Affordable Modification Program (HAMP). The loan servicer must participate in HAMP and the program only applies to mortgages executed before January 1, 2009. The borrower needs to have a valid financial hardship and the current mortgage payment has to be greater than 31% of the household income. HAMP allows the borrower to reduce the interest rate to 2%, extend the loan for up to 480 months and capitalize the arrears. HAMP is scheduled to expire on December 31, 2013
- The second option is a Repayment Plan which requires the homeowner to provide a good faith down payment and contribute a portion of the late payments in the regular monthly payments until the loan is brought current. A Repayment Plan provides the homeowner the opportunity to “make-up” missed payments over time rather than all at once.
- A third option is a Forbearance which is best described as a delayed repayment plan. Mortgage payments are suspended for a specific period of time. At the end of the agreed upon period, the homeowner resumes making regular monthly payments and tenders additional funds to “make-up” for the past due amount. This option allows the homeowner a certain amount of time to resolve their financial hardship while preventing foreclosure.
- A fourth option is to take out a 2nd mortgage with HEMAP to cure the late payments on the 1st mortgage. The Homeowners Emergency Mortgage Assistance Program (HEMAP) is administered by the Pennsylvania Housing Finance Agency (PHFA). HEMAP provides 2nd mortgages to homeowners that experienced a financial hardship but are currently able to cure the default on their 1st mortgage within 2 years. The HEMAP program allows homeowners the opportunity to “make-up” missed payments all at once while remaining in the home.
- Homeowners that are 62 years of age or older may want to consider a Reverse Mortgage. A Reverse Mortgage results in the lender paying the homeowner up to 60% of the value of the house. The funds are paid in monthly installments almost like the bank paying the homeowner Reverse Mortgage payments. The homeowner prevents foreclosure and receives a form of monthly income for a set number of years.
- A Short Sale of a property allows the homeowner to sell the property for the fair market value of the property in satisfaction of the mortgage. The lender agrees to accept the proceeds of the sale in satisfaction of the mortgage. The homeowner is relieved of the debt, and avoids foreclosure. Many lenders offer cash assistance with relocation expenses that range from $3,000 – $10,000.
- A Deed In Lieu for foreclosure allows a homeowner to avoid foreclosure by voluntarily deeding the property back to the lender. It’s only available if there are no junior liens (or junior lienholders agree to release). The property must be vacant at the time the deed is executed and many lenders offer cash assistance to help the homeowner with relocation expenses.
