foreclosure american-pitbullSince Obama’s $75 billion Foreclosure relief program, “Making Home Affordable” (MHA) of which HAMP is the centerpiece, was launched, lenders had sent out more than 750,000 offers to reduce borrowers’ monthly payments and avoid foreclosure of the nearly 3 million homeowners eligible for the Loan Modification plan.

Of the modifications offered, about 400,000 borrowers have signed up for three-month trial modifications, which are supposed to be extended for five years if the homeowners make their payments on time.

Borrowers can receive rates as low as 2 percent for five years. Eligible borrowers have to provide their most recent tax return and two pay stubs, as well as an “affidavit of financial hardship” to qualify.

Lawmakers are threatening to let bankruptcy judges rewrite the terms of mortgages as many lenders are still scheduling foreclosure sales and charging borrowers fees for participating in the Obama plan. Industry executives also say they are planning to work with Obama administration officials on a possible extension of the program to unemployed homeowners.

Homeowners may utilize some of these common steps to avoid foreclosure.

Mortgage Forbearance
When a lender grants forbearance to the homeowner it temporarily suspends the monthly mortgage payment. The mortgage holder grants this if there is the opportunity to increase the payment at some point in the future when the borrower’s financial situation is healthier. The increased amount is usually a portion of the past due total. This is good for you and the lender because it stops the foreclosure as well as allows the lender to collect delinquent payments over a period of time, instead of demanding the full payment immediately.

Loan Re-Negotiation
This option requires the homeowner to accept a home equity loan in order to pay the delinquent amount. Your monthly mortgage payment will often be less than before, but it all depends on the terms of your new loan. In most cases, refinancing is not an option because lenders typically will not refinance a loan that’s not up-to-date.

Adjusted Loan Payment
Requesting a new repayment plan to stop a foreclosure usually means creating a new payment schedule whereby you continue making your regular monthly payments plus a little extra on the amount that is delinquent. The payment plan is usually for a specific period of time from several months to several years.

Loan Modification
This recourse allows you to change the terms of your loan. For example, taking the past due amount and merging it with your existing loan, adjusting your interest rate and other loan terms, or simply changing your monthly mortgage payment are examples of modifying the terms of your loan. Modifications are changes that are made to your loan without refinancing.

In spite of the Obama adminstration’s foreclosure assistance program also known as “Save the Home”, many American families are losing their homes everyday. The foreclosure assistance program is not working for the majority of families due to the confusing requirements, the red tape and bureaucracy involved.

How a loan modification works
If you have fallen behind on your mortgage but are still in a position to make about 60 percent of the mortgage payment, you could qualify. Remember that lenders are not inclined to foreclose if the borrower has a way to make payments. In order to be eligible for a loan modification, you must present a significant hardship.

The modification entails negotiating with the lender and coming up with an easier payment plan, usually by lengthening the term of the loan.

The loan can be modified to consolidate more than one loan as well as to extend the term of the loan to make your payments lower. If you have an adjustable rate mortgage (ARM), you can get a loan modification that will give you a fixed rate so that you can budget your monthly payments.

Steps In A Loan Modification

1. Find the person responsible for loss mitigation at your bank or lender.

2. Have documents prepared for the lender to prove that you are in dire straits and that it is to his advantage to re-negotiate the terms of the loan. The Information that you will need includes:

  • Pay stubs
  • Monthly debt expenses (credit card bills, student loans, car loans, etc.)
  • Medical expenses
  • Tax returns, 1099 or W2 Forms
  • Utility Expenses
  • Hardship letter and proof of loss of job if available (unemployment insurance benefits, dismissal letter from employer)

3. Your lender will then assess your property and weigh whether or not it will be more profitable for them to foreclose or to modify the term of your loan.

Those who are ideal candidates for loan modification include people who are in the following type of circumstances:

  • Have been the victim of a predatory lender and now owe more than the house is worth
  • Have been laid off from work
  • Are behind on their mortgage for more than 30 days
  • Have a sub-prime loan
  • Have an adjustable rate loan
  • Have low documented income
  • Have experienced a reduction in income
  • Have experienced a catastrophic occurrence causing you financial hardship
  • Have excessive medical bills
  • Have little documented income due to being self employed
  • Owe more on the house than the house is worth

A loan modification does not do as much damage to your credit as would a foreclosure. It does not entail going with another bank to refinance your property and.

Predatory Lending
In many cases, those who are facing a foreclosure will be approached by lenders offering to refinance the mortgage. Often, the rate that is being offered is higher than prime and the lender is often banking that you will go into foreclosure and they will be able to take the home. This is known as predatory lending.

Unfortunately, the swindlers have blown in to take advantage of the crisis and the desperation of homeowners.

These predators come offering help and hope disguised as counseling programs, mortgage refinance firms and even Government agencies, often with a slick pitch to negotiate the refinancing of your property with your bank or lender. They will charge you a certain amount of money up front and then disappear.

Refinancing in most cases merely forestalls the inevitable foreclosure.

The Short Sale
In a Short Sale your home is sold before it goes into foreclosure. It does not have a negative impact on your credit and relieves you of the worry of going through the foreclosure process.

The short sale is an option for those who want to get out from under the burden of the mortgage completely, to stop struggling to make the payments, to just drop off the keys and simply walk away.

This is usually handled by real estate agents who find qualified buyers for your property and facilitate the sale, hopefully to satisfy your lender and protect you as much as possible against a deficiency judgment.

If you are seeking a fresh start in life, free from the negative impact of a foreclosure on your credit, the short sale may be for you.

Renters and Foreclosure
Many times, renters have no idea that the home where they live is being foreclosed. If you have suspicions of a problem, check with your County Recorder’s office to see if there is a “Notice of Trustee’s” sale pending on your property.

If you have a written lease agreement, record it at the Recorder’s Office in the county where you live. If the home that you rent does go into foreclosure, anyone examining the county records will know that the property is occupied.

A new Federal law, known at the Protecting Tenants at Foreclosure Act of 2009, is designed to protect renters.

This law prohibits the new owner of a seized home from taking immediate possession. All purchasers of foreclosed homes must give the tenant ninety (90) days notice before terminating the rental. If the tenant had a written lease agreement, the tenant has the right to remain in that home for the entire length of the rental period, unless the purchaser intends to live in the home as their primary residence. In any case, the tenant must be given ninety days notice before eviction.

Tenants maintain the right to the possession and integrity of their property during foreclosure as well as a residence with functional plumbing, safe wiring and heat. Mortgage holders or other creditors of the landlord have no right to enter the tenant’s dwelling or seize or remove cars, furniture or other property, change the locks, threaten or harass the occupants.

State laws may give a tenant greater protections during a foreclosure process than the federal laws. If so, the greater protection applies.

Although, mortgage executives say they are racing to implement the new foreclosure program, it will arrive too late for Prof. W.C. Feltergood, “I’ve lost my job, my car, my house, my wife left me, and my dog died – sure do miss my dog.”

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