Reinstatement

A reinstatement is the simplest solution for a foreclosure, however it is often the most difficult. The homeowner simply requests the total amount owed to the mortgage company to date and pays it. This solution does not require the lender’s approval and will ‘reinstate’ a mortgage up to the day before the final foreclosure sale.

Forbearance or Repayment Plan

A forbearance or repayment plan involves the homeowner negotiating with the mortgage company to allow them to repay back payments over a period of time. The homeowner typically makes their current mortgage payment in addition to a portion of the back payments they owe.

Mortgage Modification

A mortgage modification involves the reduction of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these. These typically result in a lower payment to the homeowner and a more affordable mortgage.

Rent the Property

A homeowner who has a mortgage payment low enough that market rent will allow it to be paid, can convert their property to a rental and use the rental income to pay the mortgage.

Deed in Lieu of Foreclosure

Also known as a ‘friendly foreclosure,’ a deed in lieu allows the homeowner to return the property to the lender rather than go through the foreclosure process. Lender approval is required for this option, and the homeowner must also vacate the property.

Bankruptcy

Many have considered and marketed bankruptcy as a ‘foreclosure solution,’ but this is only true in some states and situations. If the homeowner has non-mortgage debts that cause a shortfall of paying their mortgage payments and a personal bankruptcy will eliminate these debts, this may be a viable solution.

Refinance

If a homeowner has sufficient equity in their property and their credit is still in good standing, they may be able to refinance their mortgage.

Servicemembers Civil Relief Act (military personnel only)

If a member of the military is experiencing financial distress due to deployment, and that person can show that their debt was entered into prior to deployment, they may qualify for relief under the Servicemembers Civil Relief Act. The American Bar Association has a network of attorneys that will work with servicemembers in relation to qualifying for this relief.

Sell the Property

Homeowners with sufficient equity can list their property with a qualified agent that understands the foreclosure process in their area.

Short Sale

If a homeowner owes more on their property than it is currently worth, then they can hire a qualified real estate agent to market and sell their property through the negotiation of a short sale with their lender. This typically requires the property to be on the market and the homeowner must have a financial hardship to qualify. Hardship can be simply defined as a material change in the financial stability of the homeowner between the date of the home purchase and the date of the short sale negotiation. Acceptable hardships include but are not limited to: mortgage payment increase, job loss, divorce, excessive debt, forced or unplanned relocation, and more.

Understanding your options now could mean all the difference in the world.

Bank of America is committed to helping homeowners avoid foreclosure. As most of our partners are aware we have been diligently working to develop alternative short sale programs to solve some of the fundamental issues inherent in the traditional short sale process. Prior to rolling out the government’s Home Affordable Foreclosure Alternatives (HAFA) Short Sale program in April we’d begun a pilot program we refer to as a Cooperative Short Sale. It is structured similarly to HAFA in that we work with the homeowner and agent prior to marketing the property to gain agreement on the terms of the short sale so that once an offer is received the approval is streamlined. The objective is to utilize this program for customers that do not qualify or fallout of the HAFA program. HAFA is always considered first and no HAFA eligible loans will be included in the program.

The Cooperative Short Sale program is still being developed and tested. Under the current pilot we are proactively reaching out to homeowners who have been pre-screened to meet specific eligibility requirements. Examples of the eligibility requirements include asset reviews, no second liens or MI on the loan, and participating investors. Based on our pre-review, these customers may have limited documentation required for the program. We have other versions of the program for customers who fall into segments that may require more documentation. This very limited population of customers is notified via letter if they have been selected for inclusion in any test programs. Additionally, various execution methods have been used during testing including 3rd party organizations and internal teams handling all communications. Note that although these methods are useful to quickly roll out a small pilot they are not always feasible for full scale roll out.

Other similarities of the pilot program to HAFA include:

• We will work with the customer prior to listing the home to help establish the listing price using a valuation to determine fair market value.
• We will ask that the property be actively marketed for 120 days. If it does not sell in that time, we will consider a deed-in-lieu of foreclosure to satisfy the mortgage.
• Since the appraisal and qualifications are completed upfront, short sale approval will take less than two weeks to complete.

Results from the pilots will be used to design the upcoming expansion of the program. Announcements will be made when we expand this program beyond the pilot and will outline details of the program.

Thank you for your continued support of distressed homeowners as we all work together to help make short sales a more positive experience for homeowners, home buyers, and the agents that support them.

Bank of America Home Loans

Known as short sales, the increasingly common transactions for financially troubled homeowners are projected to balloon to 400,000 in 2010, according to Core Logic, a Santa Ana company that provides services to the real estate and mortgage markets. By comparison, existing homes sold at a seasonally adjusted annual rate of 5.37 million units in June, according to the National Assn. of Realtors.

An MIT economist and two Harvard researchers analyzed 1.8 million home sales in Massachusetts (1987 to 2009), finding that “foreclosure reduces the value of a house by 27 percent, on average.”

Combine this with with their statistic that foreclosed homes make up roughly one in 12 houses with under $1 million left on the mortgage. Then consider a US Treasury statement that foreclosures can reduce surrounding home values up to 9 percent. This exposes the dramatic effect foreclosures are having on home prices−all home prices−across the country.

Is this really shocking? Perhaps the size of the decrease in value of foreclosures is shocking, but certainly not that it happens. Short sales, a transaction in which the property can avoid becoming vacant, is increasingly sought after as a solution not only for homeowners facing foreclosure, but lenders looking to recoup more of their investment. Today, CDPE-designated agents are helping to facilitate hundreds of thousands of these transactions nationwide. Already this is helping communities recover and prices stabilize. This is a movement that will continue to make a difference.