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Federal programs can help homeowners avoid foreclosure

February 27, 2011|By Lew Sichelman

Reporting from Washington — Despite efforts to the contrary, there still is a major gap between homeowners in danger of losing their homes and the resources available to help them avoid foreclosure, according to a report released last month in Nevada.

The study found that more than half the Nevadans facing foreclosure didn't know about federal and state programs aimed at helping them. Furthermore, almost as many said their lenders were "not willing at all" to work with them.

These troubling findings were revealed in an analysis of the Silver State's foreclosure crisis undertaken by the Nevada Assn. of Realtors. Actually, considering the herculean efforts being undertaken to reach endangered owners over the last few years, the findings are more than troubling; they are shocking.

The study, conducted on behalf of the 15,000-member association by national research firm SGS, was a small one. It involved 500 telephone interviews with individuals statewide who personally experienced foreclosure, plus two separate focus-group discussions in Las Vegas. So the findings may not extrapolate nationally.

But Nevada is the epicenter of the housing crisis. The state has the country's highest foreclosure rate, according to RealtyTrac. With 1 in every 79 housing units on the receiving end of a default notice, the state's household foreclosure rate is nearly twice that of any other state.

So if troubled Nevada owners aren't getting the message that help is available, it's a safe bet to assume that neither are owners in other states.

With that in mind, here is a quick rundown of the federal programs aimed at keeping people in their homes.

Under the broad Making Home Affordable initiative, Uncle Sam offers several options to owners — but not to investors — including the Home Affordable Refinancing Program (HARP) and the Home Affordable Modification Program (HAMP).

If you are on time with your payments but cannot take advantage of today's lower interest rates because you owe more than your home is currently worth, HARP can help if either Fannie Mae or Freddie Mac holds your loan; the two mortgage giants touch perhaps half of all loans.

If you are struggling to make your payments because your income has been curtailed or your interest rate has increased, you may be eligible to have the terms of your loan changed under HAMP. The amount you owe must be less than $729,250, your loan must have been taken out before Jan. 1, 2009, and your total monthly housing outlay — principal, interest, taxes, insurance and homeowner-association dues — must be more than 31% of your current gross earnings.

For owners who are having a tough time making their house payments because they have a second mortgage, the Second Lien Modification Program (2MP) offers a way to lower the payments on the junior loan when the primary mortgage is modified under HAMP.

Under 2MP, which is meant to be complementary to HAMP and is somewhat more complicated than the other alternatives, the owner of the second lien and the company administering the loan on the lien owner's behalf are given monetary incentives to reduce your rate, extend the term or possibly even extinguish the loan altogether.

If you can no longer afford your home but want to exit gracefully and avoid the negative effects of foreclosure, the Home Affordable Foreclosure Alternatives (HAFA) program offers up to a $3,000 cash stipend to help you transition into more affordable housing. To qualify, you cannot be eligible for a trial loan modification, fail to complete a successful trial mod or miss two consecutive payments during the trial-mod period.

HAFA is designed to streamline two popular options to foreclosure, a short sale and a deed-in-lieu. With a short sale, the loan servicer allows you to sell the property for less than what is owed. With a deed in lieu of foreclosure, you voluntarily transfer ownership to the servicer with the understanding that foreclosure proceedings will be dropped.

If you are considering a short sale, work only with a real estate agent who has short-sale experience. These deals are so tricky and time-consuming that only a professional who has done several of them will do. If your agent claims to know what he or she is doing, ask for references from several satisfied customers just to make sure.

Mortgage servicers who participate in the Making Home Affordable program are required to evaluate your eligibility for a loan modification before looking at your other options. If you request a mod and are determined to be mod-worthy, you will enter a trial period.

Modification possibilities include lowering your interest rate, extending the term of your loan, allowing you to skip several payments or even reducing the balance owed.

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