Mortgages for People in Foreclosure

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Mortgages for People in Foreclosure

Mortgages for people in foreclosure may help prevent foreclosures and save people the pain of being evicted from their home on account of the inability to discharge mortgage obligations.

The Federal government has launched a number of programs to stop foreclosures that have become rampant after the collapse of the housing market. Some of these programs are meant to help homeowners modify mortgage payments while others help home owners refinance their home. In addition to modifying mortgage payments and aiding mortgage refinancing, the Obama administration is also trying to provide relief to homeowners, who are unable to make the necessary mortgage payments, by encouraging mortgage lenders to allow short sales. To know more about the eligibility criteria, to qualify for mortgage modification or refinancing, one may refer to the article titled, “Government Help to Stop Foreclosures“.

Mortgages for People in Foreclosure

Mortgage refinancing refers to the process of replacing a mortgage loan with another mortgage of the same size having relatively favorable repayment terms. Of course, mortgage refinancing is possible only if one has positive built up equity in the house. The following programs can help homeowners refinance their mortgage and thus prevent foreclosures.

Home Affordable Refinance Program
People, whose loans are owned or guaranteed by Freddie Mac or Fannie Mae, have the option of refinancing their mortgage from an adjustable-rate mortgage (ARM) to a low fixed rate loan. In fact, they may be able to replace their current mortgage with a mortgage that demands interest only payments or balloon payments. The new mortgage loan, that is provided under HARP (Home Affordable Refinance Program), cannot exceed 125 percent of the current market value of the property. The Home Affordable Refinance Program is a part of the Making Home Affordable Program and will be operational till June 10th, 2010.

HOPE for Homeowners Program
The HOPE for Homeowners Program was launched on October 1st, 2008. This program is meant for homeowners whose loans are insured by the FHA (Federal Housing Administration). This program can help homeowners refinance their mortgage even if the built up home equity is less than 20 percent. The program, which expires on September 30th, 2011, was modified on May 20th, 2009, with the intention of providing additional compensation for primary and subordinate mortgage holders.

Bad Credit Mortgage Refinance
People, whose loans are not owned or guaranteed by Freddie Mac or Fannie Mae or individuals who do not have FHA insured loans, may consider approaching a mortgage broker, who may be willing to provide a new mortgage loan to replace the current mortgage, provided they have sufficient built up equity in the house. However, the borrower may be forced to pay a high rate of interest on the loan and this may very well defeat the purpose of mortgage refinancing. Moreover, mortgage brokers may also expect the borrower to purchase points wherein the cost to purchase one point is equal to 1% of the total principal amount of the mortgage loan. Although purchasing points will lower interest rates, the Internal Revenue Service (IRS) considers points as prepaid interest which has to be deducted over the term of the loan rather than at the time of closing. Again, the borrower would be required to pay closing costs that are rather steep to refinance the mortgage. A cash strapped borrower, who is not eligible for refinance under HARP or HOPE, may be unable to afford mortgage refinancing due to the aforementioned reasons.

It’s evident that mortgage refinancing may help prevent foreclosures. Just as mortgages for people in foreclosure are hard to come by, seeking a mortgage after foreclosure is also a tough task. The best way to obtain a mortgage after foreclosure is to improve credit scores that may fall by up to 350 points as a consequence of foreclosure.

By Aparna Iyer Published: 8/31/2009