Unemployment

Housing Assistance Options for Unemployed Homeowners

The bursting of the housing bubble has reduced home values dramatically over the last few years. Mortgage holders often owe more on a home than the home is worth. If you lose your job on top of that, you may feel like you’re getting it from both sides. Making a costly mortgage payment is hard enough when times are good, but it is nearly impossible when your income has been reduced to little or nothing.

Although housing is one of the most essential aspects of life, the government has dragged its feet in establishing even short-term emergency assistance for the unemployed and delinquent homeowners. Fortunately, there are a few assistance programs in place to help you stay in your home.

A number of new programs have been instituted in the last year to assist homeowners who are behind in their mortgage payments, facing foreclosure, or when they owe more than the house is worth, and want to get out.

The Making Home Affordable program from the Treasury and the Department of Housing and Urban Development (HUD) has several ways to ease the burden of your monthly mortgage payment.

The Home Affordable Unemployment Program can reduce or suspend your mortgage payments for at least three months while you look for work. You may be eligible for this relief if:

You are unemployed and eligible for unemployment benefits.

You occupy the house as your primary residence.

You make your request for help before you’ve missed three mortgage payments.

You have not previously received a UP forbearance or HAMP modification.

You obtained your mortgage on or before January 1, 2009.

Even if you are collecting unemployment benefits, you may be required to make a reduced mortgage payment, but that will not be more than 31% of your gross household income. Contact your mortgage holder to apply for this program, and to ask about any additional eligibility requirements.

You can call HUD counselors at 24 hours a day at 888-995-4673 to help you understand your options, apply for the program, and design a plan to fit your situation. This program is available from August 2010 through the end of 2012.

The Treasury Department developed the Hardest Hit Fund in 2010 to fund programs in the 19 states hardest hit by the housing crisis. If you live in one of the following states, you may qualify for housing assistance above and beyond what is available from your lender and HUD:

Available assistance and eligibility will vary by state, but assistance can include help paying your mortgage, principle reduction to help in refinancing, second lien assistance, and financial help relocating from your home to a rental property.

States that are not covered by HHF are participating in a program called the Emergency Homeowners’ Loan Program (EHLP), which provides no-interest loans of up to 24 months of mortgage payments, or $50,000, which do not need to be repaid for five years. You qualify for EHLP if you have suffered at least a 15% reduction in income due to unemployment or illness.

HUD assistance is not available to people whose mortgages are guaranteed by Fannie Mae or Freddie Mac, but both of those institutions have their own mortgage assistance programs.

Fannie Mae can help you make a repayment or forbearance plan with your lender. They can also help you modify or even get out from under your mortgage.

The Home Affordable Modification program (HAMP) can reduce your mortgage payment to at least 31% of your household income by reducing your interest rate, extending your loan duration, or deferring payments on your principal until the end of your mortgage term.

You might qualify for this modification if:

  • Fannie Mae owns your mortgage
  • You’re late on your current mortgage payment
  • You’re currently making your mortgage payments on time, but your mortgage is no longer affordable because of a hardship that you can document
  • You spend more than 31 percent of your pre-tax income on your mortgage payment (including principal, interest, taxes, insurance, and homeowners association dues)
  • You took out your mortgage on or before January 1, 2009
  • You’re currently using the home as your primary residence

If you are late or miss a mortgage payment, your lender may send you a letter with an explanation of the program and information about how to apply. If you are currently making your payments on time, but want to avoid falling behind due to financial hardship, you can contact your lender to talk about the program.

If you get behind on your mortgage payments, or think you might get behind, Fannie Mae offers a couple of options to adjust your mortgage payments and help you get over a temporary financial hardship.

A Forbearance Plan will reduce or suspend your mortgage payments for a period of time, usually 3 to 6 months, to let you get back on your feet during unemployment or other financial hardship. Although you do have to pay that part of the mortgage eventually, it will be delayed a few months to give you time to find a new job.

If you are already a few months behind on your mortgage, a Repayment Plan will spread your past due amount out over several months to allow you to catch up. Note that this option actually increases the amount of your monthly mortgage payment, but if you miss a few months of payments due to temporary unemployment, it might be a good option to avoid damaging your credit.

If you have been unemployed for a long time, or think you will be, or just believe that no amount of modification is going to make your mortgage affordable, Fannie Mae has a few options to help you get out of your mortgage.

Short-Selling your home means selling it for less than you currently owe on the mortgage. Normally, you would still be responsible for paying the rest of your mortgage off after a short sale, but Fannie Mae-backed loans may be eligible for short sales that forgive that portion of your debt.

A Deed-in-Lieu means that your lender will forgive the remainder of your mortgage debt if you voluntarily hand over the deed to your home. This is similar to foreclosure in that the bank ends up owning your home, but reduces the transition time, limits the damage to your credit rating, and reduces the time until you can buy another home.

A Deed-for-Lease agreement means returning your deed back to the bank and leasing the house from them. Basically, your lender will become your landlord. The lease payments are based on comparable rental prices in your area, rather than your mortgage, so they will probably be significantly lower. This is a good option if you cannot afford your mortgage, but want to stay in your home.

You may qualify for any of these options if:

  • You do not qualify for mortgage refinancing or modification
  • You are facing long-term unemployment or other hardship
  • You are several months behind on your mortgage payments
  • You owe more on your home than it is worth
  • You are unable to sell your home at or above what you paid for it

Freddie Mac offers two programs to reduce or suspend your mortgage payments, or to help you move to more affordable housing without being foreclosed on.

The Home Affordable Modification program (HAMP) can reduce your mortgage payment to at least 31% of your household income by reducing your interest rate, extending your loan duration, or deferring payments on your principal until the end of your mortgage term.

You might qualify for this modification if:

  • Freddie Mac owns your mortgage
  • You’re late on your current mortgage payment
  • You’re currently making your mortgage payments on time, but your mortgage is no longer affordable because of a hardship that you can document
  • You spend more than 31 percent of your pre-tax income on your mortgage payment (including principal, interest, taxes, insurance, and homeowners association dues)
  • You took out your mortgage on or before January 1, 2009
  • You’re currently using the home as your primary residence

If you are late or miss a mortgage payment, your lender may send you a letter with an explanation of the program and information about how to apply. If you are currently making your payments on time, but want to avoid falling behind due to financial hardship, you can contact your lender to talk about the program.

The Home Affordable Foreclosure Alternatives (HAFA) program allows you to sell your home and get out from under your mortgage if you can’t afford your mortgage payments even with modification. With the housing market being what it is, it can be difficult just to break even selling your home, let alone come out ahead. This can be even worse if you owe more on your mortgage than your home is worth. Fortunately, HUD has two alternatives to foreclosure that allow you to transition to more affordable housing without the pain and hassle of foreclosure:

Short-Selling your home means selling it for less than you currently owe on the mortgage. Normally, you would still be responsible for paying the rest of your mortgage off after a short sale, but Freddie Mac-backed loans may be eligible for short sales that forgive that portion of your debt.

A Deed-in-Lieu means that your lender will forgive the remainder of your mortgage debt if you voluntarily hand over the deed to your home. This is similar to foreclosure in that the bank ends up owning your home, but reduces the transition time, limits the damage to your credit rating, and reduces the time until you can buy another home.

The best part of HAFA is that the program pays you $3,000 to help with moving expenses after the process is complete.

In order to qualify for HAFA you must:

  • Have lived in the home for the last 12 months
  • Have documented financial hardship (unemployment assistance qualifies)
  • Have not purchased a new house within that last 12 months
  • Owe less than $729,750 on your first mortgage
  • Have obtained your mortgage before January of 2009 Have not been convicted of felony property or financial crimes in the last ten years.

The HAFA program runs until December 2012. Contact your lender if you have questions about this program.

As you can see, there are many options to help you reduce your mortgage payments, catch up when you’re behind, or get out from under a mortgage that you can no longer afford. The federal and state governments are falling over themselves to help people with their mortgages in this economy. And lenders know that they stand to make more money in the long term by keeping people in their homes rather than foreclosing on them.

If you’re in a situation where you need to alter or get out of your mortgage, there are two things you need to do:

Act fast. These programs are intended as temporary assistance to homeowners in desperate need. Many of them expire at the end of the year, or even in a few months. Even the programs that last longer have limited funds, which will be loaned on a first-come first-served basis. The sooner your lender knows about your situation, the more likely you can reach an agreement that works for you.

Be Prepared. As you know from the home buying process, your bank needs a lot of information from you to accomplish anything. You will be ahead of the game and make the process much smoother if you gather your documents ahead of time.

Fannie Mae recommends having the following paperwork handy when you speak to your lender or housing counselor:

  • Your most recent tax return, complete with all schedules and W-2s
  • Your two most recent bank statement
  • Your two most recent pay stubs, or documentation of your most recent unemployment payments
  • Your monthly mortgage statement with lender’s information and loan number
  • Information about other mortgages or liens on your home, if any
  • Your most recent credit card bill
  • Account balances on your other debts (student loans, car loans, etc.
  • Estimates of your other monthly expenses, including utility bills, insurance, education, food bills, child care, and entertainment expenses
  • A letter detailing the nature of your financial hardship, with copies that can be included with your application materials

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Unemployment