The Government Mortgage Bailout for Americans
The federal government in 2009 launched its Home Affordable Modification Program to provide financial relief to homeowners who were struggling to make their mortgage payments on time each month. Today, the government's Making Home Affordable series of relief efforts includes programs designed to lower homeowners' monthly payments and drop their interest rates. The goal is to leave homeowners who have suffered a financial crisis with mortgage payments that they can afford. The hope is that these homeowners will then be able to avoid losing their homes to foreclosure.
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How They Work
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The government's mortgage bailout programs all work according to the same system: To take advantage of these programs, struggling homeowners must first contact their existing mortgage servicers. These are the companies to which these homeowners are already sending their mortgage payments. Homeowners must also prove that they are working through a financial setback that makes their current payments unaffordable. They can do this by making copies of their most recent work paychecks, bank savings and checking account statements and federal income tax returns, and sending them to their lenders.
HAMP
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The government's first mortgage bailout program was the Home Affordable Modification Program, better known as HAMP. Under this program, the government uses financial incentives to convince mortgage lenders to lower the monthly mortgage payments of homeowners who have suffered a job loss, reduction in working hours, serious injury or other financial crisis. Lenders can reduce homeowners' monthly payments in a number of ways, including dropping their interest rates, forgiving a chunk of their loans' principal balances and restructuring their loans' terms. Homeowners, though, must have taken out their mortgage loans on or before Jan. 1, 2009, and owe $729,750 or less on their mortgages to qualify for this program. They must also have a mortgage payment that is 31 percent or more of their gross monthly incomes.
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HARP
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When housing values fall, it becomes difficult for homeowners to refinance their existing mortgage loans to ones with lower interest rates. That's because most lenders require that homeowners have 20 percent equity before they'll approve them for a conventional mortgage refinance. The government's Home Affordable Refinance Program, or HARP, though, allows homeowners to refinance if they have little to no equity in their homes. Homeowners who owe as much as 125 percent of their home's current value on their mortgage loans can qualify for the program. As an example, homeowners with residences valued at $200,000 can qualify even if they owe as much as $250,000 on their home loans. These homeowners, though, do need to have a loan owned or guaranteed by Fannie Mae or Freddie Mac to participate in this program.
Second Lien Modification Program
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Those homeowners who have more than one mortgage loan on their properties -- a primary loan and a second loan -- might struggle to pay not only their first mortgage loan each month but their second, too. These homeowners can work through the government's Second Lien Modification Program to lower the payment on their second mortgage. To participate, though, homeowners must first complete a modification of their primary mortgage loan through the Home Affordable Modification Program. Homeowners must also owe more than $5,000 on their second home loan and have a monthly second loan payment of at least $100.
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