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HAMP, HAFA, and Other Four Letter Words
March 24, 2010 - Dylan Renz
There has been lots of talk about the government programs being created to try and help the housing market and assist homeowners in jeopardy of losing their homes to foreclosure. These programs are complex and as someone who works in real estate I can tell you that wrapping my head around the 43 pages of government guidelines and forms for the new HAFA Program is no easy task. However, I will do my best to explain the basics of these programs (in plain English) and how they might affect you.
The Home Affordable Refinance Program (HARP) is meant for homeowners who are current on the mortgages, but are unable to refinance at today’s lower interest rates because of the decreased value of their home. It should allow 4 to 5 million homeowners to refinance their homes into loans with more affordable monthly payments. To be eligible a homeowner must be current on a mortgage that is owned or guaranteed by Freddie Mac or Fannie Mae, must have a reasonable ability to pay the new mortgage and the refinance must improve the long term affordability or stability of the loan. In addition, the first mortgage can not exceed 125% of the property value. Who can benefit? Some homeowners will find this program helpful; however, most of the people in trouble locally with upside-down mortgages owe substantially more than 125% of the current property value on their first mortgage and are therefore excluded.
The Home Affordable Modification Program (HAMP) is meant for homeowners who are struggling to pay their mortgage or who have already fallen behind on their payments. The program works by offering mortgage loan servicers with financial incentives for modifying existing mortgages and making monthly payments more affordable for the borrowers. The qualification process is based primarily on current income. The existing mortgage payment must be more than 31% of the borrowers pre-tax monthly income and the borrower must be able to document financial hardship. Who can benefit? Again, some homeowners who are struggling will find this program helpful, but only mortgage servicers of loans that are guaranteed or owned by Freddie Mac or Fannie Mae are required to participate in HAMP. For everyone else it is optional.
The Home Affordable Foreclosure Alternative Program (HAFA) is meant for homeowners who eligible for HAMP, but are still unable to keep their homes. It offers incentives for lenders to accept a short sale or deed-in-lieu instead of foreclosure. It is meant to offer guidelines for streamlining the short sale process and is set to take effect April 5, 2010. Who will benefit? No one knows. This is a complex program that will only help those who are already eligible for HAMP and there are serious doubts about whether banks will actually follow any of these guidelines since they are not required to. Only time will tell.
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