"Making Home Affordable" Program"

In order to stabilize the housing market and the overall economy in general, the Obama Administration rolled out its centerpiece program to be effective as of January 1, 2010.  The program, overall known as "MAKING HOME AFFORDABLE: encourages lenders and their services along with the borrowers to explore all possible home retention options and essentially delieates these options in descending order.

When this program was initially rolled out earlier this year, it was only applicable to non-Fannie Mae/Freddie Mac loans or as they're  more commonly known, Non-GSE (Government-Sponsored Entity) loans.  These include non-conforming and the "Sub Prim" loans that were popular for much of the 2000 decade.  As of June 1, both GSE's (Fannie Mae and Freddie Mac) are now participating in the "MAKING HOME AFFORDABLE" program with some minor differences.  FHA and VA are currently working out the details of a similar program for borrowers on those loans, but they are currently not available.

The "MAKING HOME AFFORDABLE" program has 4 components that represent 3 major options for the homeowner and lender/servicer in descending order.  These include:

• HOME AFFORDABLE REFINANCE PROGRAM (H.A.R.P.)

• HOME AFFORDABLE MODIFICATION PROGRAM (H.A.M.P.) along with a "2MP" option for 2nd liens

• HOME AFFORDABLE FORECLOSURE ALTERNATIVE PROGRAM

As it stands, here are the facts about the 3 layers of the "MAKING HOME AFFORDABLE" program:

Home Affordable Refinance Program (H.A.R.P.)

This program entails doing a refinancing of an existing loan under the following conditions:

1. Property is owner/occupied with 1 to 4 units.

2. Loan can be a non-GSE loan or can now be guaranteed by Fannie Mae or Freddie Mac.

3. The borrower must be current on the loan being refinanced or not more than 30 days late on the payments.

4. The existing loan does not exceed 125% of the market value of the property.

5. The borrower must have the reasonable ability to pay the new loan.

6. It must be domonstrated that the refinancing of the loan will improve the long-term affordability of the loan for the borrower.

7. The program will sunset on December 31, 2012.

It is important to note that a borrower seeking to participate in this program does NOT have to be behind on their payments.  This had been a problem previously for borrowers seeking to refinance a loan on which they were only anticipating having problems.  Also, keep in mind that a refinance is technically a new loan that usually will have different terms and conditions, and even a new loan amount at less than the current amount.

If a borrower cannot qualify for the HARP program, the next best option is to go with the HOME AFFORDABLE MODIFICATION PROGRAM (H.A.M.P.)

Home Affordable Modification Program (H.A.M.P.)

1. The property must be the borrower's principal residence.

2. The loan on the property must be equal to or less than $729,750 if it is a single-family home, $934,200 if the property is a duplex, $1,129,250 if it is a triplex and $1,403,400 if the property is a 4-plex.

3. The borrower must be having difficulty making the loan payments and must explain the reasons.

4. The loan must have been originated prior to January 1, 2009.

5. A property with either one or two loans on it can be eligible, but the payment on the 1st loan (P.I.T.I.) must not exceed 31% of the gross monthly income of the borrower.

6. The borrower is still allowed to have their property on the market as a Short Sale while their application for H.A.M.P. is in process.  These programs can run parallel to each other.

7. The borrower is entered into a trial period for 60 to 90 days to determine their ability to keep their new commitment.

If it is determined that this is not an option for the borrower, then the next step would be for the borrower to apply for the HOME AFFORDABLE FORECLOSURE ALTERNATIVE program (H.A.F.A.).  In that event, the borrower will be eligible to receive up to $3,000 in relocation expenses.  Also, if the home is currently not occupied, the borrower cannot have been out of the home more than 90 days prior to their application.

Home Affordable Foreclosure Alternative Program (H.A.F.A.)

In the event that the HAMP option is not feasible for the borrower, the next step would be for the borrower to market their property as a "Short Sale" under the HAFA program.  The conditions that apply to this program would include:

1. All home retention options must be offered to the borrower.

2. Any loan servicer participating in HAMP must also implement HAFA.

3. If the HAMP loan modification program does not work, the borrower agrees to a HAFA Short Sale.

4. The mandated HAFA process will apply to the Short Sale.

5. The program will expire on December 31, 2012.

Under these conditions, the loan servicer has the following options:

1. Lender/servicer can forgive the debt.

2. Reduce the interest rate by 1% on a loan on which both principal and interest are being paid.

3. Reduce the rate by 2% on interest only loans.

4. Can reamortize the loan by up to 40 years.

5. The lender/servicer is forbidden from asking for a forbearance agreement where the amount is not forgiven but deferred.

6. This program will also expire on December 31, 2012.ce

Once it is determined that the best option for the borrower is to go with the HAFA program, the process would proceed as follows:

1. If the borrower missed 2 consecutive payments under the HAMP program, they automatically agree to proceed with the HAFA option which is a Short Sale process.

2. Also, any borrower who does not qualify for HAMP at the outset would go with this option or who does not complete the HAMP trial period for any other reason.

3. The lender must, again, consider all home retention options for the borrower.

4. The lender must stop any pending foreclosure proceedings if the homeowner applies for the HAFA Short Sale or deed-in-lieu-of program.

5. The borrower must fill out a Request for Modification application (RMA).  To be eligible, the borrower must apply and the lender/servicer must respond.

6. The property can be vacant for up to 90 days up until they apply for the program.

7. If the borrower does not wish to consider modification, this action would not trigger disapproval.

8. If the borrower is in the process of bankruptcy, they must still be considered for eligibility for this program but the request must be made by the bankruptcy trustee.

9. While there are mandated boilerplate forms offered by HUD for this process, lenders may still use their own proprietary forms.

10. A property valuation, either an appraisal or a BPO, must be procured to determine eligibility.

11. The lender/servicer cannot require the borrower to pay any part of the principal balance either as a cash contribution or a promissory note.

Once the process is in play, the steps that must be taken depend on whether the property will be marketed as a Short Sale or if there is an offer for the property that has been submitted.

If the borrower/seller wishes to offer their property as a "Short Sale-approved" property, the following steps must take place:

Request for Approved Short Sale (RASS)

1. The borrower must use the approved RASS form.

2. The agent must submit the listing within 3 business days of the listing contract.

3. There is an alternative RASS form if the owner already has a Purchase & Sale (P&S) on their home.

4. In that event, they must submit both the alternative RASS and a copy of the P&S.

5. The Short Sale must follow the lender's outlined processes.

6. The lender has 30 days (calendar days) to respond to the RASS.

7. The borrower can receive a pre-approved Short Sale.

General Tips

Be sure to advise the borrower to include the following when applying for this program regardless of which level they will be inserted into:

1. 2 years tax returns

2. 2 years W-2's and/or 1099 forms

3. Last 30 days check stubs

4. Last 90 days bank statements

5. Balances and monthly payments on any credit card accounts

6. Balances and monthly payments on other debts (auto, student loans, etc.)

7. Letter detailing the borrower's personal financial circumstances