Mortgage Bailout Options
- The Home Affordable Modification Program is the centerpiece of the government's Making Home Affordable plan. Under this program, the government provides financial incentives to those mortgage lenders who modify the home loans of homeowners who have suffered financial setbacks and can no longer afford their mortgage payments. Lenders can reduce these homeowners' mortgage interest rates, restructure the terms of their home loans or forgive a portion of their principal balances, all measures that will lower their monthly mortgage payments. To qualify for the program, homeowners must meet certain requirements: They must be struggling to make their payments, be modifying a loan on a primary residence, owe $729,750 or less on their loans and have a loan that they took out on or before Jan. 1 2009. Their total monthly home loan payment must equal at least 31 percent of their gross monthly income.
- The 2nd Lien Modification Program is designed to help homeowners who have two mortgage loans -- a primary loan and a second loan -- on their residences. Lenders participating in this program can reduce the second loan of homeowners by dropping the interest rate on these loans, extending the term of the second loan to 40 years or forgiving a portion of the second loan's principal balance. To qualify for this program, homeowners must first have their primary mortgage loan modified through the Home Affordable Modification Program. They must also have taken out their second mortgage loan on or before Jan. 1 2009, and must have have an unpaid principal balance on their second mortgage loan of at least $5,000.
- Some lenders, rather than allow their borrowers to lose their homes to foreclosure, will accept short sales or deeds-in-lieu of foreclosure. The government's Home Affordable Foreclosures Alternatives, provides financial assistance to homeowners who are pursuing either route. Under a short sale, lenders agree to let homeowners sell their homes for less than what the homeowners owe on their first mortgage loans. In a deed-in-lieu of foreclosure, lenders voluntarily take over ownership of properties when their owners can't sell them. The Home Affordable Foreclosure Alternatives program provides homeowners who complete either option with up to $3,000 to help with their relocation costs.
- Those homeowners who want to lower their mortgage payments by refinancing to a loan with a lower interest rate might benefit from the government's Home Affordable Refinance Program. This program provides financial incentives to lenders who agree to refinance the home loans of homeowners who have little to no equity in their residences. Traditional mortgage lenders usually require homeowners to have at least 20 percent equity in their homes before they'll approve them for refinances. Under the government's program, though, homeowners can qualify for refinances even if they owe up to 125 percent of their home's value on their mortgage loan. As an example, homeowners with homes worth $100,000 would be able to qualify for refinances even if they owed $125,000 on their loans. To qualify, homeowners must be seeking a refinance on a home with one to four living units, have a home loan owned or guaranteed by Fannie Mae or Freddie Mac and be current on their mortgage loan payments.