A perfect storm of sub-prime mortgage lending and steadily increasing unemployment has put millions of Americans on the brink of foreclosure. In response, the U.S. government has devised several mortgage relief programs that aim to soften the blow. In some cases, relief takes the form of loan modifications that result in lower monthly payments; in others, unemployed homeowners may be eligible for temporary home mortgage relief through drastically reduced - or deferred - monthly payments. When foreclosure is inevitable, there are debt mortgage relief plans in place that offer alternatives.
Several different types of mortgage relief are available; it's all too easy, however, for homeowners to become overwhelmed by the vast array of different options. Confusion over eligibility is rampant - for instance, many homeowners mistakenly believe that home mortgage relief is only available to those who are unemployed. The key thing to keep in mind is that the mortgage relief act aims to curtail preventable foreclosures. The various incarnations of the act encourage lenders to work with the government to keep people in their homes; in exchange, lenders are typically reimbursed through subsidies. For homeowners, it's a way to save their homes and contribute to the recovery of the economy.
Mortgage Relief: An Overview of the Options
While the U.S. mortgage relief plan is often lumped together under a single name - Making Home Affordable - in reality, it's actually made up of four distinct programs. By understanding the differences between the available programs, struggling homeowners can zero in on the mortgage relief plans that are right for them. In turn, they stand a much better chance of avoiding foreclosures and of remaining in their homes. Some of these programs are specifically geared toward those who are unemployed; others are designed for people who are "underwater" with their loans. Learn more about each debt mortgage relief program below.
The Home Affordable Modification Program
Much of the confusion concerning mortgage relief programs stems from the fact that the Home Affordable Modification Program, or HAMP, has been modified several times since its implementation. Originally, HAMP was specifically geared to help homeowners who were affected by the sub-prime lending crisis. At the height of the housing "bubble," millions of people took on adjustable-rate mortgages. When that bubble burst - and mortgages reset at higher rates - many were left with loans that they were unable to pay.
In an effort to hold on to their homes, many people sought refinancing. Just as the rates on many loans were resetting, however, home values were dropping dramatically. As a result, many homeowners owed more on their loans than their homes were worth and were not eligible for refinancing. Backed into corners, millions of homeowners faced foreclosure.
The Home Affordable Modification Program debuted in February 2009 as a part of the Obama Administration's Financial Stability Plan. The government offered subsidies to banks and other mortgage lenders, giving them the flexibility to modify mortgages so that people could stay in their homes. The program doesn't kick in automatically; homeowners must find out whether or not they are eligible and have to initiate the process themselves.
Home Mortgage Relief: Help for Unemployed Homeowners
In March 2010, as unemployment continued to rise steadily in the U.S., the Obama Administration expanded its Home Affordable Modification Program by offering debt mortgage relief to unemployed homeowners. The program provides temporary relief by reducing unemployed homeowners' monthly mortgage payments to 31% of the total amount of unemployment benefits that they receive each month, for up to three months. Alternatively, unemployed people can have all of their mortgage payments deferred - without penalties - for three to six months. In this case, however, lender approval is necessary; the government refunds lenders' losses through subsidies.
Additional Facets of the Mortgage Relief Act
In addition to the Home Affordable Modification Program, three distinct programs are available for providing mortgage relief:
The Second Lien Modification Program - Homeowners who qualify for the Home Affordable Modification Program may be able to modify any second mortgages they hold through the Second Lien Modification Program, or 2MP.
Home Affordable Refinance Program - Homeowners who hold loans that are guaranteed or owned by Freddie Mac or Fannie Mae may be able to refinance into more reasonable monthly payments.
Home Affordable Foreclosure Alternatives - Homeowners who are not eligible for any mortgage relief programs do not need to face foreclosure alone. Through the Home Affordable Foreclosure Alternatives program, many of the most severe consequences of undergoing a foreclosure are reduced or eliminated. The program helps people who are facing imminent foreclosures qualify for deed-in-lieu of foreclosures, short sales and other alternatives. In turn, transitioning into more affordable housing is much easier.
The Bottom Line on Home Mortgage Relief
The main thing that a homeowner must keep in mind when it comes to mortgage relief is that initiating the process is their responsibility. The first step in the process is determining eligibility, which can be accomplished at the government's mortgage relief website - makinghomeaffordable.gov/modification_eligibility.html. By taking a proactive approach, determining which program is right for them and working with their lenders, homeowners can stave off foreclosures and remain in their homes.