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Distressed Refinance and Loan Modification Programs

Distressed Refinance and Loan Modification Programs

  • Distressed Refinance and Loan Modification Programs
  • The federal government has implemented several programs designed to help borrowers who are struggling to pay their mortgages or who are dealing with a significant decline in the value of their home. The programs are intended to help borrowers refinance or modify the terms of their mortgage to reduce their principal loan balance or lower their monthly payments. The programs outlined below are targeted at the most distressed borrowers who are on the verge of foreclosure or losing their homes. Most of these programs are meant for borrowers who are both underwater on their mortgage and who are behind on their payments.

    Programs such as HARP 2.0 and the FHFA Principal Reduction Modification Programthe most popular refinance programs for underwater borrowers, are meant for borrowers who have the financial ability to continue to make a monthly mortgage payment, although potentially a reduced one.   The list below shows distressed refinance and loan modification programs for specific loan programs and borrower situations.

    For example, specialized programs are available for borrowers with FHA, VA and USDA loans in addition to conventional loans that are not backed by the government. There are also programs for borrowers who may not be able to afford the second mortgages they have. Additionally, unemployed borrowers struggling to make ends meet may be able to use the Home Affordable Unemployment Program (UP) to stay in their homes. Some of these programs are available through your current mortgage lender while others are provided by government agencies or state or local HUD-approved housing commissions.

    The list below summarizes many of the distressed refinance and loan modification programs programs available to borrowers and provides links to where you can find additional information. It is important to highlight that several but not all distressed refinance and loan modification programs are no longer available as the housing market and economy have rebounded and we note if a program has expired. Review the information below to find the distressed refinance or loan modification program that best meets your needs.

    • Select your state to contact HUD-approved housing commissions about homeowner assistance programsHUD Resources
  • Program

    Program Description

    Find More Information

    Flex Modification Program
    • The Flex Modification Program targets distressed borrowers who are more than 60 days delinquent on their mortgage or who are in imminent risk of default
    • The goal of the program is to help struggling borrowers modify their existing mortgages into more affordable and sustainable loans
    • The program is designed to reduce your monthly mortgage payment by at least 20% so that your total monthly housing expense (including property taxes and insurance) is no more than 40% of your monthly gross income
    • The program offers borrowers principal forbearance (reduction) of up to 30% of the unpaid loan balance with a target loan-to-value ratio of 80% -100% based on your current property value. For example, if your current loan balance is $100,000 you may be eligble to have your mortgage reduced by up to $30,000
    • Other potential Flex Modification Program benefits include a reduction in interest rate, the conversion of an adjustable rate mortgage into a fixed rate loan and an extension of your loan term to 480 months (40 years), all of which reduce your monthly payment
    • To be eligble for the Flexible Modification Program your mortgage must be owned by Fannie Mae or Freddie Mac
    • The Flex Modification Program is offered through participating lenders. You should contact your mortgage servicer (the company to which you make your mortgage payment) to determine if you are eligible for the program
    Making Home Affordable Program Freddie Mac Flex Modification Program Fannie Mae Flex Modification Program
    Home Affordable Modification Program (HAMP)
    • The HAMP Program expired on December 31, 2016 and was replaced by the Flex Modification Program (see above)
    • If you are not unemployed, but you are still struggling to make your mortgage payments, you may be eligible for the Home Affordable Modification Program (HAMP)
    • The HAMP program provides lenders with financial incentives to help distressed borrowers modify their mortgages
    • By modifying your mortgage through the HAMP program you may be able to lower your monthly mortgage payments in order to make them more affordable and sustainable for the long-term
    • Because the HAMP program works through lenders, contact your mortgage servicer (the company to which you make your mortgage payments) to see if they participate in the program
    • To apply for HAMP you must submit an application to your mortgage servicer
    • There are over 100 participating HAMP mortgage servicers
    HAMP Lenders
    FHA, VA and USDA Home Affordable Modification Programs (FHA-HAMP, VA-HAMP, USDA-HAMP)
    • The Federal Housing Administration (FHA), Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) all offer mortgage modification programs for struggling homeowners designed to lower monthly mortgage payments to no more than 31% of the homeowner's verified monthly gross income — making monthly mortgage payments much more affordable
    • If you have a loan that is insured or guaranteed by the FHA, VA or USDA you may be eligible for a HAMP program offered through that government agency
    FHA HAMP VA HAMP USDA HAMP
    Principal Reduction Alternative (PRA)
    • Part of the HAMP Program, the Principal Reduction Alternative (PRA) was designed to help you by encouraging mortgage servicers and investors to reduce the amount of your mortgage
    • THE PRA program is designed for borrowers who are significantly underwater on their homes (the amount of their mortgages is much greater than the value of their properties)
    • There are several eligibility requirements to qualify for the PRA program including that your mortgage payment is more than 31 percent of your gross monthly income, you have a financial hardship and are either delinquent or in danger of falling behind on your mortgage and you must have sufficient, documented income to support the modified payment
    • The PRA program works through lenders, so contact your mortgage servicer (the company to which you make your mortgage payments) to see if they participate in the program
    Second Lien Modification Program (2MP)
    • The Second Lien Modification Program (2MP) is designed to help borrowers that have a home equity loan, HELOC, or some other second mortgage that is making it difficult for them to make their mortgage payments
    • To be eligible for the 2MP program a borrower's first mortgage had to have been permanently modified under the HAMP program
    • 2MP works in tandem with HAMP to provide comprehensive solutions for homeowners with second mortgages to increase long-term affordability and sustainability
    • The 2MP program works through lenders, so contact your mortgage servicer (the company to which you make your mortgage payments) to see if they participate in the program and they can also evaluate you for a second lien modification
    HAMP Lenders
    Home Affordable Foreclosure Alternatives (HAFA) Program
    • The Home Affordable Foreclosure Alternatives (HAFA) program is designed for borrowers that cannot afford their mortgage payments and recognize that it is time for them to transition to more affordable housing
    • The HAFA provides two options for transitioning out of a mortgage:
      • 1) Short sale. In a short sale, the lender lets you sell your house for an amount that falls "short" of the amount of your mortgage
      • 2) Deed-in-Lieu (DIL) of foreclosure. In the DIL, the lender lets you give the title back, transferring ownership of the property back to them
    • Unlike conventional short sales, a HAFA short sale completely releases you from your mortgage debt after selling the property. This means you will no longer be responsible for the amount that falls "short" of the amount you owe on the mortgage. The deficiency is guaranteed to be waived by the mortgage servicer
    • In a HAFA short sale, your mortgage company works with you to determine an acceptable sales price for the property
    • HAFA has a less negative effect on your credit score than foreclosure or conventional short sales
    • When you sell your house short or transfer the title back to the lender, HAFA provides $3,000 in relocation assistance
    • There are several eligibility requirements to qualify for the HAFA program including that you live in the property or have lived there within the last 12 months, you have a documented financial hardship and you have not purchased a new house within the last 12 months
    • HAFA is available for mortgages that are owned or guaranteed by Fannie Mae and Freddie Mac . See Fannie Mae and Freddie Mac's Loan Lookup Tools to determine if your property is owned or guaranteed by Fannie Mae or Freddie Mac or serviced by over 100 HAMP participating mortgage servicers
    HAMP Lenders
    FHA Refinance for Borrowers with Negative Equity (FHA Short Refinance)
    • The FHA Short Refinance program provides financial incentives for lenders to refinance and modify FHA-insured mortgages
    • The FHA Short Refinance program is designed for borrowers with FHA-insured mortgages who are not behind on their mortgage payments but whose mortgages are greater than the value of their properties
    • FHA Short Refinance is designed to help homeowners refinance into more affordable, more stable FHA-insured mortgage
    • The FHA Short Refinance program works through lenders so contact your mortgage servicer (the company to which you make your mortgage payments) to see if they participate in the program
    • If your current lender agrees to participate in an FHA short refinance, they will be required to reduce the amount you owe on your first mortgage to no more than 97.75% of your property's current value
    • Participation of mortgage servicers is voluntary
    FHA Second Lien Program (FHA-2LP)
    • The FHA-2LP program expired on December 31, 2013 but we provide the following summary for informational purposes
    • If you have a second mortgage and your first mortgage servicer agrees to participate in an FHA Short Refinance, you may be eligible to have your second mortgage on the same property reduced or eliminated through the FHA Second Lien Program (FHA-2LP)
    • To be eligible for the FHA-2LP program you must first verify that you are eligible for an FHA Short Refinance and you must have obtained your mortgage on or before January 1, 2009
    • If the servicer of your first mortgage agrees to an FHA Short Refinance, the first mortgage servicer will work with the second mortgage servicer to reduce or eliminate the second mortgage
    • If your second mortgage servicer agrees to participate, the total amount of your total mortgage debt (including your first and second mortgages) after the refinance cannot exceed 115% of your home's current value
    • The FHA-2LP program works through lenders, so contact your mortgage servicer (the company to which you make your mortgage payments) to see if they participate in the program and they can also evaluate you for a second mortgage modification
    Home Affordable Unemployment Program (UP)
    • If you are unemployed and struggling to pay your monthly mortgage payment, the Home Affordable Unemployment Program (UP) may reduce your mortgage payments to 31% of your monthly gross income or suspend them altogether for 12 months or more
    • To be eligible for the UP program you must be unemployed and eligible for unemployment benefits, occupy the house as your primary residence, have not previously received a HAMP modification and you must have obtained your mortgage on or before January 1, 2009
    • The UP program is not currently available for homeowners with mortgages held by Fannie Mae and Freddie Mac; however, both have their own programs for unemployed homeowners
      • Use Fannie Mae and Freddie Mac's Loan Lookup Tools to determine if your property is owned or guaranteed by Fannie Mae or Freddie Mac
    • The UP program works through lenders so contact your mortgage servicer (the company to which you make your mortgage payments) to see if they participate in the program
  • Use the FREEandCLEAR Lender Directory to search for twenty-five loan programs including multiple refinance assistance options.

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    Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
     
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    Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
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    Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
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    Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
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    FHA Upfront Premium More Info
    FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
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    Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

    The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

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    Current Mortgage Rates as of December 13, 2018
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    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click here for more information on rates and product details.
  • Great Mortgage IdeaRelated FREEandCLEAR Resources

  • Sources

    Making Home Affordable Program: https://www.makinghomeaffordable.gov/pages/default.aspx

    FHA HAMP Program: https://www.hud.gov/program_offices/housing/sfh/nsc/lossmit

    VA HAMP Program: https://www.benefits.va.gov/HOMELOANS/resources_payments.asp

    USDA HAMP Program: https://pubmai.sc.egov.usda.gov/fcls.html

About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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