Friday, March 5, 2010

3 Options for Upside Down Homeowners

If you owe more on your home than it would bring in today’s housing market you may feel trapped with no options. Should you have tried to recently refinance your home you may be painfully aware that your options are severely limited. Most lenders require equity in your home before allowing you to refinance.

You may think you have no where to turn, but you might be wrong. Options do exist and two of them are part of the federal government’s Making Home Affordable program.

Option one is HARP, or Home Affordable Refinance Program. (Don’t you just love how all government programs seem to be required to have a catchy acronym?) If your situation meets certain criteria, you could be eligible for a refinance of 105% and in some cases up to 125% of the value of your home.

Before throwing that “refinance celebration party” there are a couple of qualifications that must be met. First, you cannot be on the road to foreclosure. If you have had any delinquent payments over the past 12 months, you will not qualify for this program.

Also, Fannie Mae or Freddie Mac must own your home mortgage. This is because this federal program is made available only through these two mortgage behemoths. You find out whether or not your loan is owned by Fannie or Freddie at and following the four steps linked to the home page.

Your ability to take advantage of this program will also depend on your credit score, the way your current home financing is structured and other lender specific guidelines. It won’t help everyone, but it could help you and it’s worth looking into. HARP can literally shave $200 to $400 off your monthly payment and can make the difference in your being able to keep your home.

Option two is HAMP, or Home Affordable Modification Program. (Not quite as catchy an acronym as the former, but it’ll do.) To qualify for this option you will need to prove financial hardship that puts your mortgage in imminent danger of default. If you travel down this path, be prepared for a thorough personal financial audit of all income and assets. It’s guaranteed not to be a pleasant experience having someone comb through your personal finances, but it could mean the difference between keeping and losing your home.

Again, this program requires that your current loan be owned by Fannie or Freddie but this program includes those home loans owned by the U.S. Treasury. There’s not website for easy look up of Treasury owned loans, you’ll have to make some calls to find out. Your lender should be able to help you ferret this out.

The federal government provides up to $1,500 to lenders for processing these modifications, but the final approval rests with the lender, not the government.

HAMP is not a refinance program, it is a restructuring of the terms of your current note. This restructuring can lower your payment for up to five years (that’s 60 months). Then beginning in the sixth year the borrower’s interest rate may begin to increase but no more than one percent per year until it reaches the “market rate at the time the modification agreement is prepared,” this according to the Making Home Affordable website.

Some of the options available to the mortgage company are re-amortize your loan to a longer term, lower your interest rate, or forgive some of the principal balance of your loan. But in the final analysis, the decision rests with your lender. Once the new agreement has been reached, the modification has a ninety-day trial period where the lender evaluates your ability to meet the terms of the modification before setting the changes permanently in place.

Option three if you don’t qualify for HARP or HAMP, there’s nothing to keep you from trying to negotiate a modification with your lender. Call them up and give it a try. Whatever you do, don’t bury your head in the sand and ignore the problem. Ignore it long enough and your lender will foreclose on your home.

If modification or restructuring your home loan is not an option for you, consider a short sale which means selling your home at market value with the remaining loan balance being forgiven by your lender. It will take some negotiating with your lender, but this option is better than foreclosure.