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.

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

2-1

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

Refinance

2-2

Eligibility Criteria for Home Affordable Refinance

2-3

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

2-4

Sell and Bring $ to Closing

2-5

• 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

2-6

• Workout options include:

> Forbearance

> Reinstatement

> Repayment plan

> Loan modification

> Sign over property to lender

2-7

Eligibility Criteria for Home Affordable Modification

2-8

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

2-9

• 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

2-10

• 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

2-11

1. Lessen impact that foreclosure can have on surrounding community

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

2-12

Foreclosure Alternatives

2-13

• 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

2-14

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

2-15

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

2-16

• 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

2-17

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

Do Nothing or Walk Away

2-18

• Walking away from property eventually leads to lawsuit to foreclosure

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