Refinance with Bad Credit

Making Home Affordable program

The Making Home Affordable Program was designed to spend about $75 billion to help close to 9 million homeowners avoid foreclosure by using cost sharing and other incentives to induce banks to reduce monthly payments or lower interest rates on home loans. The Home Affordable Modification program is part of Making Home Affordable, and is less restrictive about borrowers' credit history than the main parts of the Making Home Affordable Program.

Thus far, the Home Affordable Modification program has only helped about 168,000 Americans modify their home loans. New provisions for the program are being introduced that are aimed at making it more effective.

Home Affordable Modification

Homeowners with bad credit can take advantage of the Home Affordable Modification program to make changes to their mortgages that will result in lower monthly payments. The government believes that by lowering monthly payments, sufficient breathing space will be created for homeowners to pay their monthly expenses and their monthly mortgage payment, thus avoiding foreclosure. Avoiding mass defaults on home loans is an important policy objective, as a large number of defaults can undermine the solvency of the U.S. banking system, thus exacerbating current economic problems.

To qualify for HAMP, homeowners must:

• Have taken out their mortgage before Jan. 1, 2009
• Be the occupant of the home. Homes bought for investment purposes are excluded from the Home Affordable Modification program.
• Owe $729,750 or less on their home.
• Have trouble making payments on the mortgage because of financial hardships such as interest or payment increases, medical problems, a lost job, etc. Applicants will be asked to prove their financial hardship.
• Have a current monthly mortgage payment that takes up more than 31 percent of their pre-tax monthly income.

When properly applied, the Home Affordable Modification Program is actually preferable to a refinance loan because home owners are not required to pay any upfront costs for modifying their loan. The government reimburses the lender with a $1,500 credit for every loan it modifies.

If a homeowner is approved for the Home Affordable Modification Program, he or she can soon realize a number of benefits from the program. The homeowner's interest rate can be reduced to as little as 2 percent. The length of the loan term can be extended to 40 years in order to decrease monthly payments. In some cases, the lender may be able to defer a portion of the loan's principal until the borrower pays off the loan and waive interest on the portion of the principal that has been deferred.

The Home Affordable Modification Program has been beset with problems, including long lines, lenders unfamiliar with the terms of the agreement, lost paperwork, trouble getting forms, etc. Even some of the borrowers who qualified for the modifications still had foreclosure action taken against them by lenders unfamiliar with the program. The vast majority of the problems associated with the program appear to be confusing paperwork and reluctance by lenders to cooperate.

Because of the difficulties with the program, the 168,000 people the program has been able to help has fallen far short of the program's goal to help up to 4 million homeowners.

Changes to the program set to take effect on June 1 are intended to make it more accessible and effective. The changes will require that companies servicing mortgages must now evaluate borrowers who have fallen behind by two payments to see whether they are eligible for the program. If they're determined to be eligible, the servicer must actively encourage the borrower to participate. The program also now allows people in bankruptcy to participate.  Also companies will be required to act more quickly on making eligibility decisions and processing documents.

With nearly 14 percent of all U.S. homeowners delinquent on their mortgages, home loan refinance and modification programs may help prevent a massive default that could further sink the economy.