State, federal programs can help avoid foreclosure

United Feature Syndicate Inc.

WASHINGTON -- Despite efforts to the contrary, there still is a major divide between homeowners in danger of losing their homes and the resources available to help them avoid foreclosure, according to a report released last month in Nevada.

The study found that more than half the Nevadans facing foreclosure didn't know anything about federal and state programs aimed at helping them. Furthermore, almost as many said their lenders were "not willing at all" to work with them.

These troubling findings were revealed in an analysis of the Silver State's foreclosure crisis undertaken by the Nevada Association of Realtors. Actually, considering the Herculean efforts being undertaken to reach endangered owners over the past few years, the findings are more than troubling; they are shocking.

The study conducted on behalf of the 15,000-member NVAR by national research firm SGS was a small one. It involved 500 telephone interviews with individuals statewide who personally experienced foreclosure, plus two separate focus-group discussions in Las Vegas. So it may be wrong to extrapolate the findings onto a national stage.

But Nevada is the epicenter of the housing crisis. According to RealtyTrac, the state has the country's highest foreclosure rate. With one in every 79 housing units on the receiving end of a default notice, the state's household foreclosure rate is nearly twice that of any other state.

So if troubled Nevada owners aren't getting the message that help is available, it's a safe bet to assume that neither are owners in other states. And if Nevadans who go to their lenders for help are being turned away at a better than two-to-one clip, it's likely that a similar percentage are being rejected elsewhere as well.

With that in mind, here is a quick rundown of the federal programs aimed at keeping people in their homes.

Under the broad Making Home Affordable initiative, Uncle Sam offers several options to owners -- but not to investors -- including the Home Affordable Refinancing Program and the Home Affordable Modification Program.

If you are on time with your payments but cannot take advantage of today's lower interest rates because you owe more than your home is currently worth, HARP can help if either Fannie Mae or Freddie Mac hold your loan; the two mortgage giants touch perhaps half of all loans.

If you are struggling to make your payments because your income has been curtailed or your interest rate has increased, you may be eligible to have the terms of your loan changed under HAMP. The amount you owe must be less than $729,250, your loan must have been taken out prior to Jan. 1, 2009, and your total monthly housing outlay -- principal, interest, taxes, insurance and homeowners association dues -- must be more than 31 percent of your current gross earnings.

For owners who are having a tough time making their house payments because they have a second mortgage, the Second Lien Modification Program offers a way to lower the payments on the junior loan when the primary mortgage is modified under HAMP.

Under 2MP, which is meant to be complementary to HAMP and is somewhat more complicated than the other alternatives, the owner of the second lien and the company administering the loan on his or her behalf are given monetary incentives to reduce his or her rate, extend the term, or possibly even extinguish the loan altogether.

If you can no longer afford your home but want to exit gracefully and avoid the negative effects of foreclosure, the Home Affordable Foreclosure Alternatives program offers up to a $3,000 cash stipend to help you transition into more affordable housing. To qualify, you cannot be eligible for a trial loan modification, fail to complete a successful trial mod, or miss two consecutive payments during the trial-mod period.

HAFA is designed to streamline two popular options to foreclosure, a short sale and a deed-in-lieu. With a short sale, the loan servicer allows you to sell the property for less than what is owed. With a deed-in-lieu of foreclosure, you voluntarily transfer ownership to the servicer with the understanding that foreclosure proceedings will be dropped.

If you are considering a short sale, work only with a real estate agent who has experience with them. These deals are so tricky and time consuming that only a professional who has done several of them will do. If your agent says he or she knows what they are doing, ask for references from several satisfied customers just to make sure.

Mortgage servicers who participate in the Making Home Affordable program are required to evaluate your eligibility for a loan modification before looking at your other options. If you request a modificaiton and are determined to be worthy, you will enter a trial period.

Modification possibilities include lowering your interest rate, extending the term of your loan, allowing you to skip several payments or maybe even reducing the balance owed.

If you don't qualify for any of the above options, your servicer will evaluate your situation for possible inclusion in its own proprietary programs. According to HOPE Now, a private, voluntary alliance of servicers, investors, insurers and nonprofit counselors, its members completed twice as many loan modifications under their own programs as under the government's.

If any of these possibilities seem as if they even remotely apply to your situation, nose around the government's Making Home Affordable website (www.makinghomeaffordable.gov).

It's also a good idea to consult with a local housing counseling agency that can help you wind your way through the maze you about to enter. They usually charge a minimal fee, or nothing at all, so stay away from anyone who wants money from you in advance, pressures you to sign the house over to them, or tells you to make a payment to anyone other than your lender.

Counselors also will have their fingers on state and local initiatives to help their citizens stave off foreclosure. In Nevada, for example, the state operates a foreclosure-mediation program. But according to the NVAR study, almost half the respondents have never heard of it.

For a list of government-approved agencies, visit the Department of Housing and Urban Development's website (www.hud.gov) or call 800-569-4287 to be connected to HUD's interactive voice system. A few other good sources are the National Foundation of Credit Counseling (www.nfcc.org); NeighborWorks America (www.nw.org), a leader in affordable housing and community development; and the Consumer Credit Counseling Service of Greater Atlanta (www.credability.org), a nonprofit with a local name but a national footprint.

Documents to keep on hand

To make your effort to save your home a successful one, take your time filling out the required documentation to make sure that you have answered every question correctly and thoroughly. Remember to put your loan number in the top right-hand corner of each and every page you submit, and keep copies of everything. You may have to supply a fresh set of documents every month to keep your file current.

Here is the documentation that's often required:

• A completed and signed mortgage home affordable application.

• A completed and signed Form 4506T, the tax form that gives your servicer permission to obtain your most recent federal tax return from the Internal Revenue Service.

• Pay stubs for you and your spouse's most recent month's income. That means four stubs if you are paid weekly, two if you are paid biweekly.

• If you are self-employed, the most recent year-to-date profit and loss statement for your business. This is a separate breakdown, signed and dated, not the one you submitted with your tax return.

• The two most recent bank statements.

• The latest year's tax returns, with all schedules, again signed and dated, and with all schedules so they can be checked against what the IRS provides.

• A recent utility bill for the subject property with the address and your name on it.

• If you have boarders, a lease signed and dated by both of you. The lease must state the monthly rental and for how long. Also, your bank statements must show evidence that the income has been deposited for the previous six months.

• If you are a landlord with other properties, submit a lease for each one.

• Social Security recipients must submit their annual award letter. Neither your monthly statement nor 1099 will do. Likewise, unemployment recipients must submit their determination letter, not their monthly stub.

• You are not required to disclose support, alimony or separation-maintenance income. But if you choose to do so, send a copy of the court order or decree, or a written agreement between you and your ex that has been filed with the court and statements the amount and period of time it will be received. Also, your two most recent bank statements showing receipt of such payment.

• Phone numbers where you can be reached, including your mobile number.

Lew Sichelman has been covering real estate for more than 30 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance-industry publications.