A Closer Look at Home Affordable Foreclosure Alternatives

The meltdown in the US home market sector, caused by a credit crunch that even up to now has yet to be fully addressed and eliminated, caught many American homeowners and the US government itself unawares.

The Run-Up to the Credit and Housing Crunch

During the late 1990's and early 2000's, a large, steady influx of foreign money and easy terms in acquiring a home in the US created a housing boom, known as the housing bubble. The latter term is used in reference to the underlying fragility of the market, which then went largely unnoticed by the government, the banking industry, financial regulatory bodies, and the public alike. The bubble was created in large part by subprime lending.

Subprime lending meant that people with below par credit histories and higher risks of defaulting on loans were still able to qualify for credit that allowed them to purchase homes. It also meant borrowers were able to take out high mortgage terms or second mortgages on their houses, believing they could refinance once terms became easier.

An Unfortunate and Largely Unforeseen Turn of Events

A confluence of several factors -- heavy debt-load for lending institutions, the fall in value of mortgage-backed securities, the proliferation of non-bank, non-GSE (Government Sponsored Entities) mortgage lenders, the rise in loan and mortgage rates, resulting government bailouts, and the eventual sharp rise in mortgage defaults and foreclosures - led to the bursting of the housing and credit bubbles. This, in turn, reverberated throughout and slowed down not only the US economy, but was part of the global financial crisis as well in the late 2000's.

The Government Steps In

Remediation measures took form in legislative action that instituted reforms in the financial and banking industries. Programs were also put in place that were aimed at helping homeowners manage their mortgages, or provide other options in case of circumstances farther down the road.

HAFA, or Home Affordable Foreclosure Alternatives Program, is one such existing helpline under the wider initiative of the Obama administration, the MHA, or Make Home Affordable program.

There are different proposed alternatives to homeowners' mortgage problems, depending on the specifics of each of their situations. The Home Affordable Foreclosure Alternatives program is for homeowners who can no longer keep up with their mortgage payments, and are considering cheaper housing options. The program extends help in two ways, and has several benefits that make foreclosure a last resort.

Easy Terms for Hard Times

Those considered eligible for the Home Affordable Foreclosure Alternatives program can either make a short sale, or transfer back ownership through a Deed-in-Lieu. A short sale, when the mortgage is owned or guaranteed by Freddie Mac, Fannie Mae, or HAMP-affiliated mortgage providers, allows a homeowner to sell his house for an amount "short" of the actual debt owed. (Home Affordable modification Program is a parallel program, still under the MHA, that standardized loan modifications for homeowners working to refinance their mortgages.) Deed-in-Lieu lets a homeowner transfer the property title back to the mortgage services, in exchange for loan cancellation.

The upside for troubled homeowners who decide to transition out of their mortgage via the Home Affordable Foreclosure Alternatives program are:

1. Lesser negative impact on credit rating
2. Balance deficiency after a short sale is waived by the lender
3. Short Sale  price can be negotiated with mortgage provider
4. Free advice from market professionals and government housing counselors
5. Possible qualification for relocation allowance

For homeowners seeking to rework their mortgages for the first time, the Home Affordable Foreclosure Alternatives program may not be for them - yet. Mortgage lenders will prefer that homeowners keep their homes, and suggest other options at first. Most of these would be available under the MHA program as well, and as already mentioned, free advice from HUD-approved housing counselors is available to help clear the table and delineate the best action plan in the long run.

On the other hand, if a homeowner has a cheaper housing alternative, and wishes to be legally free of his mortgage obligation, the Home for Affordable Foreclosure Alternative program offers a streamlined, time-bound process, with feedback available, that can ultimately help a homeowner get a fresh new start.

The Guldi Group has been handling short sales for consumers since 2001, in an effort to provide information for real estate buyers and sellers more information on their options for foreclosure. If you are thinking of putting your homes in short sale in preventing foreclosure, please don’t hesitate to contact us at www.optionsforforeclosure.us.