Don't Let This Happen to You
The U.S. government has taken steps recently to stem the tide of home foreclosures, especially in the form of the Making Home Affordable program, passed in early 2009, and the HOPE for Homeowners, created in late 2008. Whether either of these are right for a particular homeowner depends on a number of circumstances, including the mortgage amount, the kind of mortgage, and the kind and location of the property -- as well as cooperation of a lender. HUD-approved counselors can help homeowners sort things out.
Making Home Affordable
The Making Home Program, administered by the Department of Housing and Urban Development (HUD), takes two different approaches to help keep homeowners from foreclosure: refinancing, or modification of the terms of the loan. In either case, a lender has to be on board with the changes. The government is offering incentives to do so, but it isn't mandatory.
Making Home Affordable refinance is for a homeowner who is still current on his or her mortgage, but who can't take advantage of the lower-interest, fixed-rate mortgages now available because the value of the home has declined too much. According to HUD, "the goal of the Home Affordable Refinance is to provide creditworthy borrowers... the opportunity to get into a mortgage with payments that are affordable today and sustainable for the life of the loan."
Make Home Affordable modifications are for homeowners who are having a hard time making mortgage payments, or who are already late on the their mortgage payments. In this case, the government is providing mortgage service companies incentives to change the terms of their mortgages, to make them more affordable over a period of years, presumably until the borrower is better able to pay.
The modified interest rate under this program can be as little as 2 percent for five years, increasing 1 percent per year after that to a predetermined maximum. In some cases, if the lender agrees to it, the term of the loan will be increased (to 40 years instead of 30, for example) to reduce monthly payments, and lenders may even reduce the amount of principle owed, though this is less likely than interest reduction.
HOPE for Homeowners
The other foreclosure-prevention initiative, HOPE for Homeowners, started in the fall of 2008 and was modified to attract more participants in the spring of 2009. The thrust of the program is to enable borrowers "to refinance into FHA-insured mortgages they can afford," says HUD.
The program is designed to deal with the fact that many homes have lost a lot of value recently, leaving homeowners "underwater" -- that is, owning more on the house than the house is worth. In HOPE for Homeowners, lenders reduce the size of the mortgage to no more than 90 percent of the newly appraised value of the house.
The new mortgage under the program is a 30-year, fixed rate mortgage, so the monthly payment never ratchets upward. Should the house eventually increase in value (as most do over the long term), part of the deal is that the lender will also get a share of the equity created. If a homeowner's current lender isn't interested in participating, the homeowner can go to a HUD-approved lender who is.
Watch Out for Scams
The important thing to do when considering either Making Home Affordable or HOPE for Homeowners is to do your homework by getting information from the right sources. Federal government web sites or toll-free numbers are good places to start, and then homeowners should visit a HUD-approved housing counselor.
The last word on whether a particular borrower can participate in the programs, and in what way, has to come from a lender, either the homeowner's current one, or a new one.
Watch out for scams. Unscrupulous con artists are already trying to take advantage of the situation by promising to fix foreclosure problems without much effort on a homeowner's part -- for a fee, which they disappear with. Preventing foreclosure will not be easy, however. Homeowners need to take the initiative themselves, and deal only with HUD-approved counselors, whose assistance is free.
