Until recently, struggling homeowners who are underwater in their mortgage had little choice to dig their way out of their financial crisis. The alternatives were Foreclosure or Short Sale, which results in them losing their home and damaging their credit. The other alternative is a loan modification.
To assist those willing to stay in their home and who are able to pay their mortgage, the Federal Housing Administration passed HARP, the Home Affordable Refinance Program. If the homeowner is current on their Fannie Mae or Freddie Mac mortgage, the borrower could refinance the loan at a lower interest rate under this program.
The new and improved HARP program, which came into effect in March 2012, eliminated the loan-to-value cap in the previous program and extended the program through December 2013. As a result of these changes, refinance applications are at a three-year high.
In Florida, 60% of all conforming loans closed in July 2012 were a result of the new HARP program. Currently, 22% of all mortgages are underwater, where their home value is less than the amount borrowed. In an effort to stimulate the economy, the Feds have agreed to purchase $40 billion in mortgages every month until the labor market improves. By making their mortgage more affordable, there would be a reduction in Foreclosures and Short Sales and the homeowner would have more income to spend on other commodities, further stimulating the economy. Private lenders are reporting that loan modifications rose 43% in July over June. This may be due in part as a result of the $25 billion mortgage servicing agreement between the Federal government and the five largest private lenders, Chase, Bank of America, Wells Fargo, Citibank and GMAC. To comply with the $25 billion agreement new regulations were mandated, as a result of wrongful foreclosure investigations, stemmed by a robo-signing scandal. This investigation found that several banks, including GMAC, signed foreclosure documents without reviewing them. For tens of thousands of homeowners who are underwater in their mortgage, but are not facing a Foreclosure or Short Sale situation, these new federal and private lender programs are proving to offer relief and helping homeowners stay in their home.