Government Programs

Empower yourself with knowledge today!

Below is more information on the Government programs that are active in today’s market. In order for you to the make the best decision for your family, you have to make sure that you have the right information on everything that is out there. Below you will find some of the most important FAQ’s to help make the most informed decision for your family.

Here’s a few of the programs currently available to get a glimpse of what is out there:

Hamp Program (Home Affordable Modification Program): The Home Affordable Modification Program is designed to help financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term. The program provides clear and consistent loan modification guidelines that the entire mortgage industry can use.

Borrower eligibility is based on meeting specific criteria including:

1. borrower is delinquent on their mortgage or faces imminent risk of default
2. property is occupied as borrower’s primary residence
3. mortgage was originated on or before Jan. 1, 2009 and unpaid principal balance must be no greater than $729,750 for one-unit properties.

After determining a borrower’s eligibility, a servicer will take a series of steps to adjust the monthly mortgage payment to 31% of a borrower’s total pretax monthly income:

1. First, reduce the interest rate to as low as 2%,
2. Next, if necessary, extend the loan term to 40 years,
3. Finally, if necessary, forbear (defer) a portion of the principal until the loan is paid off and waive interest on the deferred amount.

Only 5% of the total borrower’s who applied for a HAMP program have been successful

Mortgage Debt Relief Act: If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

What does exclusion of income mean?
Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?
No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing
separately.

Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?
Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, please send us an email at Joe@StopForeclosureDavisWeber.com

How long is this special relief in effect?
It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012.

Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income?
The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately for the tax year), at the time the loan was forgiven. If the balance was greater, please contact us at Joe@StopForeclosureDavisWeber.com for more detailed information.

Can I exclude debt forgiven on my second home, credit card or car loans?
Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion.

What is the HAFA program? The Home Affordable Foreclosure Alternatives (HAFA) program is for borrowers who, although eligible for the government Home Affordable Modification Program (HAMP), are not able to secure a permanent loan modification or cannot avoid foreclosure. HAFA provides protection and money to eligible borrowers who decide to do a Short Sale or a Deed-in-Lieu of foreclosure.

Some of the key benefits are:

• Borrowers receive $3,000 for relocation assistance.
• Lenders must allow the opportunity for the borrower to attempt a Short Sale or accept a Deed-in-Lieu of foreclosure before following through with a foreclosure.
• Borrowers are fully released from future liability for the first mortgage debt – lenders cannot ask for a cash contribution, promissory note, or deficiency judgment to complete a short sale or DIL.  Additionally, junior lien holders (i.e. 2nd mortgages) who participate in the HAFA incentives must also release borrowers from future liability.

In order to qualify for HAFA, borrowers must already meet the basic eligibility criteria for the HAMP modification program:

• The property is the borrower’s principal residence.
• The first mortgage originated before January 1, 2009.
• The mortgage is delinquent or default is reasonably foreseeable.
• The mortgage’s unpaid principal balance is no more than $729,750 (higher limits for 2 to 4 unit dwellings).
• The borrower’s total monthly mortgage payment exceeds 31% of their gross income.
• The mortgage also needs to be serviced by a lender who is participating in the HAMP program (the majority of lenders are).

Given that the borrower, mortgage and servicer all meet the above qualifications, then the lender must consider HAFA if the borrower:

• Is denied a HAMP trial period plan.
• Does not successfully complete a HAMP trial period plan or is denied a permanent HAMP modification.
• Is delinquent on a HAMP modification (misses at least 2 consecutive payments).
• Requests a short sale or DIL.

statistics are showing only about 10% of the HAFA programs are successful