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Mortgage Options For Permanent Financial Distress
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I Am Behind On My Mortgage And My Finances Are Permanently Reduced
The foreclosure avoidance options listed below assume that you had a permanent financial hardship that makes it difficult or impossible to afford your current monthly mortgage payment. Though your specific options will depend on your exact financial situation and what type of loan you have, in general, if you have a permanent hardship, you need a loan modification that permanently changes to the terms of your loan. This can mean lowering your interest rate, lengthening the time you have to pay back the loan (called the “term”), and/or forgiving or forbearing a portion of the principal.
Not all options listed below may be available to you depending on your financial situation, what type of loan you have and your lender's available programs. These foreclosure avoidance options are not legally required to be offered by your lender, but most lenders will offer most of these options as a way to reinstate your loan to good standing. Everyone looses money, including your lender, when a foreclosure is filed. Your lender wants to enter into an agreement with you to avoid foreclosure if it is financially feasible to do so. Your lender may push you to agree to a plan that it prefers, but there are usually other options available. Avoid agreeing to a plan on which you may not be able to make the payments. Consider all available options before choosing the one that is best for you.
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- Refinance
Refinancing will completely replace your current mortgage loan with a new one. The new loan will pay off the old one and provide you with a new interest rate, new term (the loan length) and a new monthly payment. If you have an adjustable-rate mortgage that is adjusting or want to secure a lower interest rate than your current mortgage, refinancing may be able to reduce your monthly payments to a more sustainable level.
Refinancing may make sense if you:
- Have enough equity in your home to qualify for a new loan.
- Are current on your mortgage payments.
- Have acceptable credit.
- Want to secure a lower rate, longer term or a different type of loan.
You do not have to refinance with your current lender. In fact, it is advisable to shop around with different banks and lenders to get the best terms possible for your new mortgage.
- Home Affordable Refinance Program (HARP)
If you are unable to qualify for a standard mortgage refinance, you may be able to refinance through the Home Affordable Refinance Program (HARP), part of the federal Making Home Affordable Program. HARP is designed to help you get a new, more affordable, more stable mortgage.
HARP may make sense if you:
- Have a loan that is owned by Freddie Mac or Fannie Mae. To quickly find if Fannie Mae owns your loan, click the Fannie Mae Loan Lookup Tool. To see if Freddie Mac owns your loan, click the Freddie Mac Loan Lookup Tool.
- Have little or no equity in the home due to a reduction in your home's value or for any other reason. The current loan-to-value (LTV) ratio must be greater than 80%.
- Are current on the mortgage at the time of the refinance, with a good payment history over the past 12 months.
- The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
If your loan is owned by Freddie Mac, you may check your potential eligibility for HARP here. If your loan is owned by Fannie Mae, you may check your potential eligibility for HARP here.
Ask your mortgage servicer (the company to which you make your mortgage payments) if they participate in HARP. Not all mortgage servicers do. If your servicer does not participate, you can contact another servicer that is approved by Fannie Mae or Freddie Mac to inquire about HARP. If you need a list of other servicers or have additional questions about getting mortgage help, contact a free HUD housing expert at 888-995-HOPE (4673).
The HUD-approved housing counselors at the Homeowner's Hope Hotline will help you understand your options, design a plan to suit your individual situation and prepare your application. Research shows that homeowners who work with housing experts like these are more successful and have better long-term outcomes. There is no cost to you for this valuable, around-the-clock service. Help is available in more than 160 languages.
HARP refinance loans require a loan application and underwriting process, and refinance fees will apply. The HARP Program ends December 31, 2015. For more information see the Fannie Mae and Freddie Mac Loans page of this website.
- Loan Modification
For homeowners who are several months behind on their mortgage – or expect to fall behind soon – a loan modification of the mortgage terms may provide a solution. With a loan modification, you and your mortgage company will have a written agreement that changes one or more of the original terms of your mortgage note (such as the interest rate or duration of loan) to make your payments more affordable and sustainable.
A modification may make sense if you:
- Are not current on your mortgage.
- Do not qualify for the federal Home Affordable Refinance Program (HARP).
- Do not qualify for the federal Home Affordable Modification Program (HAMP).
- Can afford the modified mortgage payments.
Mortgages are modified to the benefit of the borrower in one or more of the following ways:
- Reduction in interest rate, or a change from a floating to a fixed rate, or in how the floating rate is computed.
- Reduction in principal.
- Reduction in late fees or other penalties.
- Lengthening of the loan term.
- Capping the monthly payment to a percentage of household income.
- Home Affordable Modification Program (HAMP)
If you're behind in your mortgage payments, in the foreclosure process, or current on your payments but are about to default due to a recently experienced hardship, you may be able to modify your loan to a lower rate through the Home Affordable Modification Program (HAMP), part of the federal Making Home Affordable Program.
HAMP may make sense if you:
- Have a loan that is owned by Freddie Mac, Fannie Mae or serviced by over 100 HAMP participating mortgage servicers. To quickly find if Fannie Mae owns your loan, click the Fannie Mae Loan Lookup Tool. To see if Freddie Mac owns your loan, click the Freddie Mac Loan Lookup Tool.
- Took out your mortgage on or before January 1, 2009.
- Currently live in the property as your primary residence.
- Do not qualify for the federal Home Affordable Refinance Program (HARP).
- Are behind on your mortgage, or you are current but will be unable to afford your mortgage payments because of a documentable financial hardship.
- Spend more than 31 percent of your pre-tax income on your mortgage payment (including principal, interest, taxes, insurance and homeowner's association dues, if any).
- The property has not been condemned.
- You have sufficient, documented income to support a modified payment.
- You have not been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
- You owe up to $729,750 on your primary residence or single unit rental property.
Be aware that all workout options affect your credit rating and some affect it more than others. You should discuss all potential impacts with your lender. You may also visit www.myfico.com for more information about your credit.
FHA Home Affordable Modification Program (FHA-HAMP)
Veteran's Affairs Home Affordable Modification Program (VA-HAMP)
USDA's Special Loan Servicing
FHA, VA and USDA all offer mortgage modification programs for struggling homeowners designed to lower monthly mortgage payment to no more than 31% of the homeowner's verified monthly gross (pre-tax) income — making monthly mortgage payments much more affordable. If you have a loan that is insured or guaranteed by the Federal Housing Administration (FHA), Veteran's Affairs or the United States Department of Agriculture you may be eligible for a program offered through that government agency.
Second Lien Modification Program (2MP)
If your first mortgage was permanently modified under HAMP and you have a second mortgage on the same property, you may be eligible for a modification or principal reduction on your second mortgage as well, through MHA's Second Lien Modification Program (2MP). 2MP works in tandem with HAMP to provide comprehensive solutions for homeowners with second mortgages to increase long-term affordability and sustainability. If the servicer of your second mortgage is participating, they can evaluate you for a second lien modification, part of the federal Making Home Affordable Program.
Second Lien Modification Program may make sense if:
- Your first mortgage was modified under HAMP
- You have not missed three consecutive monthly payments on your HAMP modification.
- The servicer of your second mortgage participates in the Second Lien Modification Program (List of particpating servicers).
- You have not been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
Principal Reduction Alternative (PRA)
If your home is currently worth significantly less than you owe on it, the Principal Reduction Alternative (PRA) was designed to help you by encouraging mortgage servicers and investors to reduce the amount you owe on your home, part of the federal Making Home Affordable Program.
PRA may make sense if you:
- Have a loan that is not owned or guaranteed by Fannie Mae or Freddie Mac. Over 100 mortgage servicers participate in HAMP and in the Principal Reduction Alternative Program and can evaluate non-Fannie and non-Freddie homeowners for principal reduction. Participating servicers are required to develop written standards for PRA applications. The largest servicers include Bank of America, CitiMortgage, JP Morgan Chase, and Wells Fargo. If Fannie or Freddie own your mortgage, then you are not eligible for the PRA Program. To quickly find if Fannie Mae owns your loan, click the Fannie Mae Loan Lookup Tool. To see if Freddie Mac owns your loan, click the Freddie Mac Loan Lookup Tool.
- You owe more than your home is worth.
- Took out your mortgage on or before January 1, 2009.
- Currently live in the property as your primary residence.
- Are behind on your mortgage, or you are current but will be unable to afford your mortgage payments because of a documentable financial hardship.
- Spend more than 31 percent of your pre-tax income on your mortgage payment (including principal, interest, taxes, insurance and homeowner's association dues, if any).
- You have sufficient, documented income to support a modified payment.
- You have not been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction.
- You owe up to $729,750 on the first mortgage on your primary residence.
In addition to contacting your servicer, you can contact one of the Making Home Affordable housing experts at 888-995-HOPE (4673). These HUD-approved housing counselors will help you understand your options, design a plan to suit your individual situation, and prepare your application. Research shows that homeowners who work with housing experts like these are more successful and have better long-term outcomes. There is no cost to you for this valuable, around-the-clock service. And they speak more than 160 languages.
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Save The Dream Ohio
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- Mortgage Modification with Contribution Assistance
The purpose of this program in to permanently reduce a homeowner's mortgage payment. If you have severe negative equity on your home or if you have had a significant drop in income, you may not qualify for existing loan modification programs. The Mortgage Modification with Contribution Assistance program provides a payment to your mortgage servicer to reduce your mortgage principal in connection with a loan modification. This program provides funds to mortgage servicers on behalf of homeowners to help them qualify for a permanent affordable HAMP or in-house modification. Assistance may be used for delinquent mortgage payments, third party fees, delinquent property taxes, or principal reduction.
Another option under this program is for a homeowner to recast or re-amortize their first mortgage with a program contribution of up to $25,000. To be eligible, the homeowner's mortgage payment must be greater than 20% of the household gross monthly income or the household gross annual income must be less than $20,001.
Save the Dream Ohio is the State of Ohio’s foreclosure prevention program, administered by the Ohio Housing Finance Agency (OHFA). It assists Ohio homeowners experiencing mortgage distress because of a temporary or permanent reduction in income or increase in medical expenses. You can qualify for up to $35,000 in Save the Dream Ohio assistance whether you are current on your mortgage payments, behind on your payments, or in active foreclosure. The program helps homeowners experiencing an involuntary financial hardship, which makes it difficult for them to afford their mortgage payments.
Save the Dream Ohio differs from the foreclosure avoidance options listed above in that it is a three-party agreement between you, your lender and OHFA, rather than an agreement just between you, the borrower, and the mortgage lender. Save the Dream Ohio consists of six different assistance programs, the majority of which take the form of a five-year, zero-interest, non-amortizing loan secured by a recorded second mortgage that is only repayable through the net proceeds of a home sale within five years. In other words, if you keep your home for five years after receiving Save the Dream Ohio assistance then you pay nothing back and the loan is entirely forgiven. See the Save the Dream Ohio page of this website for further information.
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