Last year, the government instituted the Making Home Affordable program by which you could more easily refinance or modify a mortgage which had become...
Last year, the government instituted the Making Home Affordable program by which you could more easily refinance or modify a mortgage which had become unaffordable for you.  That program had two components, namely  the “Home Affordable Refinance Program” (HARP) and the “Home Affordable Modification Program” (HAMP).

Starting this week, the government added an option to the MHA program by which you can also short sale a home that is not approved under the refinance or modification. The new program is called “Home Affordable Foreclosure Alternatives” (HAFA), and will be in effect from now until December 31, 2012.

The main goal of the HARP/HAMP is to turn an unaffordable loan back into an affordable loan for the homeowner. This allows them to stay in their home, avoid foreclosure, and continue making payments to their lender, either through a loan modification or a refinance. The main goal of HAFA is to avoid foreclosure through an expedient short-sale.

HARP Refinance

The first line of defense for someone struggling with their mortgage is to refinance, and HARP speaks to that need. This option is for people who are still current on their mortgage, but think the mortgage may become unaffordable in the near future. The program is also meant to help borrowers whose homes have lost value and whose mortgages represent a higher loan to value ratio than what can traditionally be refinanced.  To be eligible for a refinance you must meet the following criteria:

  • Your mortgage is owned or guaranteed by Freddie Mac or Fannie Mae.
  • You are current on your mortgage payments (and you haven’t been over 30 days late with a mortgage payment in the past 12 months).
  • Your current mortgage is at least three months old.
  • Your first mortgage is less than or equal to 125 percent of the current market value of your home.
  • Your property is 1-4 units in size.

If you are not eligible for the refinance option under the home affordable mortgage program you may be able to qualify under the mortgage modification option, which helps to create a new loan altogether, and keep you in your home.

HAMP Modification

If you qualify for a HAMP refinance, your lender may be able to make a number of modifications to your existing loan. For example, you may be able to reduce your loan interest rate, switch your adjustable loan to a fixed rate loan, and can change the term of your loan.

To be eligible for the HAMP modification program you need to meet the following criteria:

  • The home in question must be your personal residence — no investment properties allowed.
  • The outstanding balance of the loan must be less than $729,750 (higher balances are allowed for 2-4 unit properties).
  • You must be able to prove a financial hardship like loss of income, employment, and/or an increase in expenses like a more expensive mortgage rate adjustment, or additional medical expenses, and be in eminent danger of defaulting on your mortgage or already be behind on payments.
  • The loan must have been originated before January 1, 2009.
  • The principal, interest, taxes, and insurance payment (PITI) (including home owners association payments, if any), is more than 31 percent of your gross monthly income.

HAFA Options

Because so many people were defaulting on their loans and walking away from their properties, the government instituted the HAFA program. If you do not qualify for HARP or HAMP, you may be eligible for HAFA.

You have two HAFA options under the program; short sale or deed in lieu of foreclosure. In a HAFA short sale, the homeowner sells the property for less than the full amount due on the mortgage. When a homeowner qualifies for the HAFA short sale, the servicer approves the short sale terms prior to listing the home and then accepts the payoff in full satisfaction of the mortgage.

Eligibility requirements for HAFA are:

  • You do not qualify for HARP or HAMP.
  • You do not successfully complete a HAMP trial period.
  • You miss at least two consecutive payments on a HAMP modification.

The program encourages participating lenders to qualify borrowers for other loan modification or refinance programs first, but also requires that every eligible homeowner must be considered for HAFA before his or her loan is referred to foreclosure, and before the servicer may allow a pending foreclosure sale to continue.

There are some benefits to the HAFA program. For instance, a homeowner can receive up to $3,000 to help with relocation costs during or after the short sale process.  Normally, during a short sale, the borrower doesn’t receive any money because the banks usually forbid it.  Also, if the homeowner cannot find a buyer under the short sale program they may be eligible to give the lender a deed-in-lieu of foreclosure.

With the Deed-in-Lieu of Foreclosure, the homeowner voluntarily transfers ownership of the property to the servicer in full satisfaction of the total amount due. The servicer may require that the homeowner list and market the property before they agree to a deed-in-lieu arrangement. In order for the Deed-in-Lieu of Foreclosure to work, the homeowner must provide a marketable title, free and clear of other mortgages, liens, or other encumbrances.  The borrower may also be eligible for a $3,000 payment under the deed-in-lieu option.


If you find that you are having trouble with your mortgage, consider refinancing through LendingTree. We might be able to get you a better refinance offer and stay out of the government program circuit. If you have questions or want to know more, simply give us a call: 1-800-555-TREE (8733).

Photo Credit: kvanhorn on Flickr

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