Trulia CEO and founder, Pete Flint, predicted mortgage foreclosure rates could soar as high as 4 million properties in 2010. Obama’s Making Home Affordable program projects 12 million Americans are at-risk for losing their home. The Huffington Post reports an additional 9 million homeowners risk losing their house to foreclosure by the end of 2012.
While mortgage foreclosure reports are mainly gloom and doom, options still exist to help homeowners remain in their home or at least minimize financial consequences. Depending on borrowers’ circumstances and lender financing programs, foreclosure options can include: loan modifications, mortgage refinance, mortgage forbearance, deed in lieu of foreclosure and short sale transactions.
Obama’s Making Home Affordable program offers borrowers the option to apply for a loan modification or mortgage refinance. However, Making Home Affordable is only available to borrowers who are current with home loan payments and have not been delinquent with payments by more than 30 days in the previous twelve months.
When lenders enter into a loan modification they temporarily alter terms of the mortgage note to reduce the monthly payment amount. Various strategies are implemented by banks and can include temporarily reducing the rate of interest, accepting partial payments or rolling mortgage arrears to the end of the note and extending the repayment dates.
Making Home Affordable offers borrowers the opportunity to refinance mortgages through the Home Affordable Refinance Program (HARP) or Home Affordable Second Lien Modification Program (MP2).
Mortgage refinance involves taking out a new loan and paying off outstanding home loans. Borrowers with poor credit will find it more challenging to refinance because banks have tightened lending criteria. Therefore, individuals in need of mortgage loans for bad credit should first attempt to refinance under HARP or MP2 programs.
Mortgage forbearance involves curing mortgage arrears through a special agreement with the lender. When borrowers fall behind with mortgage payments, but have the financial ability to become current in a short period of time, lenders will sometimes offer forbearance agreements.
When mortgage forbearance is in place, borrowers must pay their regular mortgage payment along with additional funds which are contributed towards the past due amount. As long as borrowers meet mortgage obligations their lender cannot commence with foreclosure action. Mortgage forbearance agreements typically extend for three to six months. If borrowers default on the plan, lenders move forward with foreclosure.
Short sale real estate is usually the last option presented to borrowers facing foreclosure. In essence, banks agree to accept less than is owed on the mortgage note in exchange for a quick sale.
Short selling real estate is a complicated and time-consuming task. If your lender agrees to enter into a short sale contract consider hiring a real estate attorney or short sale specialist to walk you through the process.
Last, but not least, banks occasionally offer deed in lieu of foreclosure to borrowers who do not qualify for any of the aforementioned home saving strategies. Deed in lieu requires homeowners to return their home to the lender and vacate the premises.
Borrowers who enter into deed in lieu should work with a foreclosure lawyer to ensure they are not held responsible for deficiency amounts between the sale price and loan balances. Home foreclosure is complex and can present certain tax consequences.
Individuals can obtain mortgage foreclosure resources and housing counseling through the Department of Housing and Urban Development by calling 1-800-569-4287 or visiting HUD.gov.