In this chapter:• Refinance• Sell and bring cash to closing• Lender workout• Short sale• Deed in lieu of foreclosure• Foreclosure• Do nothing and walk away

2. Options for Distressed Homeowners

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• Homeowners current with mortgage may be able to refinance to 30- or 15-year fixed-rate loan via Home Affordable Refinance

Refinance

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Eligibility Criteria for Home Affordable Refinance

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Home

Existing mortgage

Borrower

• Owner occupied• Is one- to four-unit home

• Owned or backed by Fannie or Freddie

• LTV is above 80% but not more than 125%

• Current on existing mortgage• Has income to support new

mortgage payments

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Sell and Bring $ to Closing

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• Although many homeowners may not have cash to cure deficiencies, they may have liquid assets:

> U.S. Treasury bonds

> Individual retirement accounts (IRAs)

• Homeowners encouraged to seek professional advice

Lender Workout

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• Workout options include:

> Forbearance

> Reinstatement

> Repayment plan

> Loan modification

> Sign over property to lender

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Eligibility Criteria for Home Affordable Modification

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Home

Existing mortgage

Borrower

• Owner occupied• Is one- to four-unit property

• Unpaid principal balance ≤ $729,750 for one-unit prop.

• Originated on/before 1-1-09• Payments exceed 31% gross

monthly income

• Experiences fin. hardship• At risk of imminent default

or in default

Home Affordable Modification

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• Borrowers put on 3-mo. trial period w/modified interest level and mortgage payment.

• If borrower is successful in making payments, mortgage servicer executes agreement with new interest rate.

Short Sale

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• Situation where seller:

1. Owes more on loan (and any other liens) than sale of property will produce

2. Is unable or unwilling to bring $ to closing

• Lender has not yet foreclosed on property

Why Short Sales Are Preferable to Foreclosure

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1. Lessen impact that foreclosure can have on surrounding community

2. Won’t damage distressed owner’s credit as much as a foreclosure

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Foreclosure Alternatives

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• For borrowers who meet eligibility criteria for Home Affordable Modification, but don’t qualify for modification or complete process

• Documentation will be standardized and incentives will be offered to borrowers and servicers to facilitate short sales

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Incentives • $1,000 for servicers for successful short sale or deed-in-lieu-of-foreclosure

• $1,500 for borrowers/homeowners to help with relocation expenses

• Up to $1,000 toward cost of paying junior lien holders to release liens

Foreclosure Alternatives

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Features • Depending on market, up to one year to market and sell the property

• No foreclosures may occur during marketing period

• Servicers may not charge fees to borrowers to participate

• Servicers may not negotiate lower commission after offer has been received

Foreclosure Alternatives

Deed in Lieu of Foreclosure

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• Occurs when borrower agrees to trade property to lender in exchange for cancellation of note

• More likely to work in states where there is long foreclosure timeline

• In declining markets, lenders less likely to consider deeds in lieu

Foreclosure

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• If homeowner is facing foreclosure, real estate professionals should instruct homeowner to contact lender immediately

Do Nothing or Walk Away

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• Walking away from property eventually leads to lawsuit to foreclosure

• Homeowners who are ready to walk away should contact their attorney for advice