Home Loan Advice

Beginning on April 5, 2010 lenders who participate in the Home Affordable Modification Program have to provide borrowers with the option to carry out a short sale rather than a foreclosure. Mortgage lenders must provide the minimum amount needed for an acceptable short sale offer should a borrower’s mortgage not qualify for a loan modification under the program. Is this a possible foreclosure alternative for you?

Perhaps you are at the point where you are certain that you will lose your home simply because you can no longer afford it. Maybe you have already been considering a short sale in order to avoid a foreclosure. Unfortunately, if you’re like many people, you may have found it difficult to get the mortgage lender to agree to sell your home for less than what you owe.

This situation has become common since the housing meltdown began. Often it takes months for an overwhelmed mortgage lender to respond to a short sale request. By then, it’s often too late because the buyer has gone elsewhere and the lender’s foreclosure department, or worse yet, their attorney or foreclosure legal services firm, may have started legal proceedings. What’s more, there have been no clear guidelines as to what types of short sale offers were acceptable. Beyond that, many borrowers also have second mortgages that further complicate the situation.

During the current housing crisis only about half of short sale offers have been accepted nationwide. In some hard hit regions, this number is less than 20%. As a result, many real estate agents have stopped listing short sale homes. This inability to close on homes in the short sale process has resulted in most of these homes winding up in foreclosure anyway. This is what the new Government Short Sale Program, the Home Affordable Modification Program, is supposed to correct.

Under this program, when a troubled homeowner decides to list their home as a short sale, mortgage lenders are required to respond to any short sale offers within 10 days. Additionally, the Home Affordable Modification Program also provides a number of incentives to both the homeowner, mortgage loan servicers and secondary lenders.

Under the program, homeowners get $1,500 to assist with moving expenses and cannot be charged any administrative fees for participation. Most importantly, borrowers are released from all legal obligations associated with the loan. This provision prevents mortgage lenders from seeking a deficiency judgment against the homeowner. These judgments can result in wage garnishment and other financial punishments in many states.

Loan servicers get $1,000 to help cover the cost of paperwork. Plus, the home is sold so they don’t have the additional overhead of maintaining a vacant house and trying to resell it, which can become very costly in some areas. For secondary lenders, there are up to $3,000 in incentives to encourage them to participate in the short sale offer.

To qualify for the Home Affordable Modification Short Sale Program you will have had to have unsuccessfully tried to get a mortgage modification through the program. Naturally, the property in question must be your principal residence. The mortgage loan must have been made prior to January 1, 2009 plus it must be guaranteed by Fannie Mae or Freddie Mac.

Additionally there are financial requirements. First of all, you must be behind on your mortgage. Your total monthly mortgage payment has be be more than 31% of your monthly income before taxes. Lastly, you cannot owe more than $729,750. Remember that lenders will check for any hidden income and/or assets and the tighter application process allows lenders to have greater access to a borrower’s financial information.

The Home Affordable foreclosure alternative program will expire on December 31, 2012 unless Congress decides to extend it. Let’s hope that the economy and real estate markets improve significantly by then, thus eliminating the need for the program.

Will the new Home Affordable Modification Short Sale Program help you get out of a home you can’t afford with as little financial and credit damage as possible? Maybe, but the results of the government loan modification program haven’t been that great since it was launched over a year ago. However, it is worth a try if you qualify for it.

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