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 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 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