The Federal Government has established numerous programs to provide assistance to homeowners facing foreclosure. State governments operate foreclosure-avoidance programs. Lenders have also created these programs in an attempt to help homeowners who are struggling to keep their homes.
Federal Foreclosure Assistance
The Federal Government's programs offering financial assistance to homeowners facing foreclosure are referred to as the Making Home Affordable Program (MHA Program). Programs under the umbrella of this program help homeowners facing foreclosure refinance their loans at current interest rates, which may be lower than the rates currently paid. Obtained loans may also be more stable, meaning that they are not adjustable rate mortgages with changes on the horizon. Some of these programs are also available to homeowners having trouble making their monthly mortgage payments. These programs, therefore, may also help homeowners before foreclosure is imminent.
- Loan modification or refinancing
- Underwater mortgage assistance
- Assistance for unemployed homeowners
- Managed exit assistance for homeowners
The program lists below are non-exhaustive. For more information about these programs and to check your qualification status, contact your local HUD office.
Loan Modification or Refinancing
Home Affordable Modification Program (HAMP): This program reduces a homeowner's monthly mortgage payment so that it consists of 31% of his or her verified income. The Federal Government claims that most homeowners participating in this program reduce their mortgage payments by at least $1,000.
Second Lien Modification Program: This program is designed for individuals who participate in the HAMP program but who also have a second mortgage on their property. Options under this program include a modification or principal reduction of the second mortgage.
Underwater Mortgage Assistance
Home Affordable Refinance Program (HARP): This program is designed for homeowners who are current on their mortgage but who owe more on their house than it is currently worth. It assists homeowners with obtaining refinancing.
Principal Reduction Alternative: This program encourages lenders to reduce the amount owed on a home for homeowners who owe significantly more on their home than it is currently worth.
Assistance for Unemployed Homeowners
Home Affordable Unemployment Program: This program provides unemployed homeowners struggling to make mortgage payments with a temporary reduction or suspension of mortgage payments. The reduction or suspension lasts at least 12 months.
Managed Exit Assistance for Homeowners
Home Affordable Foreclosure Alternatives: This program assists homeowners who are unable to pay their mortgage and are interested in moving to more affordable housing participate in a short-sale or deed-in-lieu of foreclosure proceeding.
Federal Assistance for FHA Borrowers
The Federal Government has established several programs specifically designed to assist Federal Housing Administration (FHA) insured mortgages facing foreclosure. Programs are available in all four general categories. Examples of programs include:
- FHA Forbearance for Unemployed Homeowners: Under this program, unemployed homeowners who purchased a home using a FHA loan can now receive a 12-month forbearance on making mortgage payments. This period was recently increased from four months, so that more homeowners could qualify for the program.
- Treasury/FHA Second Lien Program: Homeowners who obtained a short refinance on a first mortgage who also have a second mortgage on the property may be eligible to have that second mortgage reduced or eliminated. Second mortgages must have been acquired before January 1, 2009.
Qualifying for Federal Assistance
The qualification standards for each federal program differ, and you usually must speak with your mortgage servicer -meaning the company that processes your mortgage payments- to determine eligibility. Examples of qualification rules include:
- Obtaining a mortgage before January 1, 2009
- Owing up to approximately $725,000 on a primary residence
- Having a mortgage owned by Freddie Mac or Fannie Mae
- Not having participated in a federally sponsored refinancing program
- Being unemployed and eligible for unemployment benefits
- Occupying the house for which mortgage assistance is sought as a primary residence
The government's Making Home Affordable website contains specific program and eligibility information.
Some state governments offer assistance to residents facing foreclosure. The type, availability, and eligibility rules for each state's programs differ. Available programs include, but are not limited to:
- North Carolina Foreclosure Assistance Fund: This fund provides North Carolina residents facing foreclosure with up to $36,000 in an interest-free loan. The fund also offers up to $30,000 for residents facing foreclosure on a second loan.
- Illinois Foreclosure Prevention Network: This program, which was established by the state's governor, connects Illinois homeowners facing foreclosure with non-profits and government agencies who can provide assistance.
- Oregon Foreclosure Assistance: This state's program provides education about avoiding foreclosure-relief scams. It also offers connections to counselors that can assist homeowners facing foreclosure.
Some mortgage lenders are willing to provide assistance to homeowners facing foreclosure. This assistance may come in one or more of five forms:
- Repayment Plan
Specific types of assistance and eligibility rules differ for each lender. For example:
- Wells Fargo: This lender offers refinancing, repayment plan, and loan modifications to its homeowners facing foreclosure.
- Sun Trust: This lender operates a Home Retention Team that works with its homeowners facing foreclosure. Assistance may come in the form of help paying a second mortgage, providing temporary payment assistance while the homeowner attempts to sell the home, or working with the homeowner to help him or her avoid foreclosure and keep their home.
- M&T Bank: This lender offers mortgage repayment plans, loan modifications, as well as home equity loan repayment solutions. It also assists homeowners through short-sales and deed-in-lieu of foreclosure proceedings.
The federal government warns homeowners against falling prey to lenders who engage in bad practices when providing mortgage refinancing or other similar assistance. Indications of bad practices include:
- Immediately asking you to sign papers
- Charging a fee for their services
- Asking you to sign over the deed to your property
Foreclosure is a scary process. Fortunately, reputable companies and the federal government offer programs to individuals facing the loss of their home due to struggling to make mortgage payments. HUD also offers foreclosure-avoidance counseling throughout the nation.