A Guide to Government Programs For Helping Mortgage Borrowers
The Federal Government has developed several programs to help mortgage borrowers who are having trouble making their mortgage payments. The programs are complicated, and have appeared and then been revised at different times, which makes it difficult for some borrowers to know which if any might apply to them. This article is a rough guide to eligibility, designed to indicate the program or programs that are worth a closer look. More information about these programs is available on www.makinghomeaffordable.gov, and borrowers can also use the Treasury’s Explore Eligibility questionnaire.
The programs all work through participating servicers, which make the ultimate decisions about eligibility. Most of the major servicers participate in all or most of the programs, but some programs have not received wide acceptance. Treasury lists servicers with the programs in which they participate at http://www.makinghomeaffordable.gov/get-assistance/contact-mortgage/Pages/default.aspx.
Home Affordable Modification Program (HAMP)
HAMP is a loan modification program where the terms of your existing mortgage are liberalized to reduce the payment to 31% of your verified monthly gross (pre-tax) income. To be eligible for HAMP, you must:
- Occupy the house as your primary residence.
- Have obtained your mortgage on or before January 1, 2009.
- Have a current mortgage payment exceeding 31 percent of your income.
- Have sufficient documented income to afford the modified payment.
- Owe no more than $729,750 on your first mortgage.
- Have a financial hardship and either delinquent or close to it.
- Have insufficient liquid assets to cover future payments.
This is the most important and also the most complex of the programs. In addition, most servicers have proprietary modification programs for which the qualification requirements may be different. You need not specify the program for which you apply, your servicer will review your application as applying to all available programs. For more information on modifications, see The A, B, Cs of Getting Your Mortgage Modified
Other Federal Agency Modification Programs
Borrowers with loans that are insured or guaranteed by FHA, VA or USDA may be eligible for modification programs offered by each of these agencies. They are all targeted at reducing mortgage payments to 31% of borrowers’ documented gross (pre-tax) income. The details vary with the agency.
Principal Reduction Alternative (PRA)
This program is designed as a supplement to HAMP, employing principal reduction rather than interest rate reduction as a way to reduce payments. It is limited to borrowers with negative equity. The HAMP requirements stated above (except for the ambiguous liquid assets rule) apply as well to PRA. However, borrowers with loans owned or guaranteed by Fannie Mae or Freddie Mac are not eligible.
Home Affordable Refinance Program (HARP)
The HARP program is designed for borrowers who are current on their mortgage and have a good payment history over the last 12 months but are unable to refinance because their loan balance is too large relative to their property value. Borrowers who are deeply underwater, who might be tempted to walk away from their obligation, can refinance under HARP. It only covers loans that were sold to Freddie Mac or Fannie Mae on or before May 31, 2009.
FHA Refinance for Borrowers with Negative Equity (FHA Short Refinance)
This program is designed to supplement the HARP program for borrowers with underwater conventional loans – those not owned or guaranteed by any Federal agency. To be eligible, you also must:
- Be current on your mortgage payments.
- Occupy the house as your primary residence.
- Qualify for the new loan under standard FHA underwriting requirements.
- Have total debt that is not in excess of 55% of your monthly gross income.
- Have a lender willing to write down the balance on your mortgage to 97.5% of your home’s current market value.
Treasury/FHA Second Lien Program (FHA2LP)
If the servicer of your first mortgage agrees to participate in FHA Short Refinance and you also have a second mortgage on the same home, you may qualify to have the second mortgage reduced or eliminated through FHA2LP. The total amount of both mortgages after the refinance cannot exceed 115% of your home’s current value.
Second Lien Modification Program (2MP)
If your first mortgage was permanently modified under HAMP and you have a second mortgage on the same property, you may be eligible to have your second mortgage modified under 2MP. To be eligible for 2MP, you must meet all of the following requirements:
- Your first mortgage was permanently modified under HAMP.
- You have not missed three consecutive monthly payments on your HAMP- modified first mortgage..
- You owe more than $5,000 on your second mortgage.
- Your second mortgage payment is more than $100.
Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (HHF)
The HHF provides more than $7.6 billion in targeted aid to states hit hard by the economic crisis. The money goes to state housing finance agencies that develop innovative programs to stabilize local housing markets and help families avoid foreclosure. The HHF programs are not limited to homeowners eligible for other Making Home Affordable programs.
Hardest Hit Fund programs vary state to state, but may include the following:
- Mortgage payment assistance for unemployed or underemployed homeowners
- Principal reduction to make mortgages more affordable
- Funding to eliminate homeowners’ second mort gages
- Help for homeowners who are down-grading into more affordable residences.
In total, $7.6 billion has been allocated to the following 18 states plus the District of Columbia: Alabama, Arizona, California, Florida, Georgia, Illinois , Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee. Borrowers in these states must contact their state housing finance agency for details.
Home Affordable Unemployment Program (UP)
Borrowers having payment problems because they have become unemployed may be eligible for UP, which provides a one-time temporary reduction or suspension of mortgage payments for at least three months. To be eligible, borrowers must qualify for unemployment benefits, and apply before they have missed three mortgage payments. UP is not available to borrowers whose mortgages are held by Fannie Mae or Freddie Mac, which have their own forbearance programs, or to borrowers who have received a modification under HAMP. But borrowers who graduate from UP will be considered for HAMP. Borrowers may be required to make a partial payment not to exceed 31% of their monthly gross (pre-tax) income including unemployment benefits.
Home Affordable Foreclosure Alternatives (HAFA)
If loss of your home is unavoidable because your mortgage payment would not be affordable with any feasible modification, HAFA allows you to escape foreclosure by electing a short sale or a deed in lieu of foreclosure. The benefit of both is that you are relieved from all future liability in connection with the loss incurred by the lender. In addition, you will receive $3,000 in relocation assistance upon successful closing.
To be eligible for HAFA, you must have:
- Lived in the home or have lived there in the last 12 months.
- A documented financial hardship.
- A first mortgage less than $729,750.
- Obtained your mortgage on or before January 1, 2009.
In addition, no one who has purchased a house within the last 12 months is eligible.