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New Programs May Help You Avoid Foreclosure

 

New Programs May Help You Avoid Foreclosure

Struggling homeowners have new options that may prevent them from going through foreclosure.

Mortgage modifications now can include second mortgages - not just first mortgages - and cash incentives are sweetening short sale deals, thanks to new efforts by the Obama Administration.

The new efforts give some homeowners a second shot at a home-saving loan modification, especially if they were originally turned down - or turned off - because a second mortgage impeded the process.

Other homeowners may now be able to take the short sale escape route from unaffordable mortgages that could otherwise wind up in foreclosure.

Second Mortgage Modifications

Loan modifications are designed to make a home loan more affordable, typically by reducing the interest rate, extending the term of the loan and, less often, by reducing the principal. They are not refinanced mortgages, which pay off the old mortgage with a new mortgage.

Under the federal government's Making Home Affordable second-lien program, borrowers whose first mortgages are modified will automatically have payments reduced on their second mortgages as well, provided the first and second-mortgage lender participates in the program.

Twelve mortgage servicers currently do. Among them are large banks including Bank of America, Wells Fargo, Countrywide, Citibank, Chase and others.

Eligible homeowners looking to modify their first mortgage must be an owner-occupant of the home; have an unpaid principal balance that is no more than $729,750; have a loan that was originated on or before Jan. 1, 2009; have a mortgage payment (including taxes, insurance, and homeowner's association dues) that is more than 31 percent of their gross monthly income; and have a mortgage payment that is not affordable, perhaps because of a significant change in income or expenses.

Under the new second mortgage program, in addition to lowering the payment, lenders can opt to erase a borrower's second mortgage in exchange for a lump-sum payment from the government.

New Short Sale Incentives

Short sale incentives were among recent refinements to the Obama administration's housing rescue programs.

In a short sale, the lender closes the mortgage in return for whatever sale price the homeowner can net. However, the difference is sometimes considered income for which the selling homeowner may be taxed. It's important to include a tax professional's advice in the deal.

You also should get assistance from a real estate professional. RE/MAX has agents specially trained in helping homeowners avoid foreclosure. Contact a RE/MAX agent.

Under the new short sale incentive, lenders can receive a $1,000 payment from the U.S. Treasury for allowing the owner to sell the house for less than the amount owed on the mortgage and for accepting the proceeds as full repayment, rather than treating the difference as "income" to the seller.

Lenders can also receive $1,000 for accepting a deed-in-lieu transaction, in which the deed is simply transferred to the lender instead of going through a costly foreclosure.

Homeowners who agree to short sales or deed-in-lieu deals can receive up to $1,500 in closing costs. To help stop second mortgages from blocking the deal, the Treasury will pay second-lien holders up to $1,000 to relinquish their claims in such transactions.

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