The Home Affordability and Stability Act And Home Foreclosure
By: Richard E. Korb[1]
In 2008, the housing bubble ended and the housing market was in panic. Many homeowners were having their houses foreclosed with little room for recourse. In response, President Obama announced in 2009 that a new Home Affordability and Stability Act (HASA) would help stabilize the housing market. The HASA, also known as the Home Affordability and Stability Plan (HASP), is designed to give responsible homeowners suffering from falling housing prices access to low-cost refinancing. Homeowners can avoid foreclosure by adjusting their mortgage rates so that they can actually afford to pay off their loans.
Criteria for Benefiting from the Act
The act claims to benefit three million to four million homeowners whose homes have lost value compared to the value of their mortgage. To qualify for the HASA’s benefits, borrowers must meet the following criteria:
- The mortgage loan must be for the borrower’s principal residence. The borrower must be living in the house as their primary place of living.
- Mortgage loan is a conforming loan. A conforming loan is a loan which meets the guidelines of the government sponsored entities, Fannie Mae and Freddie Mac.
- Mortgage loan payments must exceed 31% of borrower’s gross income.
- The lender agrees to lower a mortgage loan rate of 38% or higher to a rate which is 38% or lower.
The act excludes a wide variety of people from receiving refinanced rates. Speculators, people who buy and sell homes for profit, do not qualify. Borrowers who have loans which are not owned, sold or regulated by Fannie Mae and Freddie Mac cannot receive lower rates. Borrowers who do not have any legal income, because they are unemployed, do not qualify. The HASA’s primary targets for aid are homeowners who are nearing default on their loans, but are still current on their payments.
Pros and Cons
Even if the borrower meets all the criteria of the act though, there are still other potential loopholes. The act is voluntarily for lenders; the lender doesn’t have to agree to anything. Of course, the act provides financial incentives for lenders who refinance under the act, but lenders still have the final word on who can refinance and who cannot.
Another aspect of the act which might hurt borrowers is that the HASA only affects home mortgages. If a borrower has “back-end debts”, other debts besides home mortgages, such as car loans, student loans or credit card debts, the borrower may still struggle to pay off the home mortgage, even with a lower mortgage rate.
If a borrower does qualify and the lender agrees, the borrower may benefit from a new fixed interest rate. The new rates will be spread over a 15 or 30 year period. The interest rate will be based on market rates in effect during the refinancing, as well as any associate prices or fees the lender believes is necessary. The refinancing will not reduce or change the amount owed on the loan; on the contrary, refinancing may result in a higher overall balanced owed. However, the monthly rate of the loan payment can be reduced and the number of years for mortgage repayment can be lengthened. While the borrower may have a higher overall balance at the end, the risk of interest accumulating is lower and paying off the mortgage will become easier.
If you believe you are eligible for the plan, you should gather information about gross monthly income of all borrowers in relation to your own income, your most recent tax returns, payment on credit card debts, payment on other loans such as car or student loans, and information on any second mortgages you may owe. Contact your lender and ask him or her if it would be possible to refinance with your current situation. If you do have a second mortgage, it may still be possible to refinance under the act, provided that the first mortgage is less then 105% of the value of the property and that the lender agrees.
If a borrower is not eligible for refinanced rates, the borrower can still benefit from the HASA in one other way. The HASA allows courts to enter the foreclosure process, so that a third-party can check whenever or not the lender has exhausted all other options, including refinancing, before foreclosing a homeowner. In essence, the HASA can turn a non-judicial foreclosure, a foreclosure without court oversight, into a judicial foreclosure. This will usually force lenders to slow down the foreclosure process, as lenders will have to prove to judges that all of their foreclosure paperwork exist and are correct.
Conclusion
The Home Affordability and Stability Act’s primary benefactors will be homeowners with a single mortgage who have been current with their payments, but are close to defaulting. The HASA can lower monthly mortgage rates, but the total balance will still be the same, if not higher. If a borrower wishes to use the HASA, he or she should contact the lender with information on gross monthly income, tax returns and other loan payments.
One other advantage the HASA gives to borrowers is the ability to bring in a court to ensure that there truly are no other options available to the lender other then foreclosure. If that occurs, it would be wise on the borrower’s part to have an attorney present. If you have any questions, please contact real estate attorney Richard Korb for a free consultation and further advice at 510-524-0903.
[1] RICHARD E. KORB is a seasoned attorney with 30 years of business, real estate and bankruptcy litigation and transactional experience. Over his legal career, Richard has successfully litigated and resolved over 300 court cases in the fields of contract law, real estate, employment, unfair competition, and general civil law and he has drafted and negotiated over 200 contracts and licenses for large and small companies alike. Richard leverages his experience as a former partner in a 100-person law firm and chief counsel for a public software company to assist individuals and companies, from start-ups to multi-nationals, with a broad spectrum of legal matters. In addition to his legal practice, Richard is a court-approved mediator and serves on the Alternative Dispute Resolution (ADR) panel for both the Alameda and Contra Costs County Superior Courts.
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