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What are Foreclosure Bailout Loans?

What are Foreclosure Bailout Loans?

Foreclosure bailout loans can help people avoid foreclosures. However, these loans come with their own set of problems. Have a look...
Aparna Iyer
Last Updated: Jan 28, 2019
Foreclosure bailout loans can be availed by people facing an impending foreclosure. However, the government is implementing a number of positive measures in order to help people avoid foreclosures. It is best to explore alternative programs before seeking loans.
Obtaining Loans to Avoid Foreclosure
Foreclosure bailout loans have a very high interest rate due to the risk involved. They may be suitable for people having a stable job, but at a risk of losing their home for their inability to predict the downturn in the housing market. Generally, the borrower is expected to pay the mortgage loan in one lump sum balloon payment in 3 to 5 years time.
In order to be able to obtain a loan to avoid foreclosure, the credit rating of the borrower needs to be good. The amount of loan that a person can obtain will also depend on the amount of built-up home equity. Hence, people who have a negative home equity may be unable to obtain these.
The lender may be willing to refinance the mortgage loan at a lower or favorable rate of interest. The homeowner can also try contacting hard money lenders. However, hard money lenders have very stringent lending terms, and it is best if they are avoided. Brokers can help bring together borrowers and lenders.
Alternative Foreclosure Bailout Programs
Making Home Affordable Program
If the homeowner's mortgage loan is owned or guaranteed by Fannie Mae or Freddie Mac, the Home Affordable Modification Program (HAMP) may help discharge mortgage obligations by changing loan terms, while the Home Affordable Refinance Program (HARP) may help refinance the loan at a lower rate. HAMP and HARP are a part of the Making Home Affordable Program.
HOPE for Homeowners Program
This program can help borrowers refinance FHA (Federal Housing Administration) Insured loans even if the built-up home equity is less than 20%.
HOPE NOW
The Department of the Treasury and the U.S. Department of Housing and Urban Development (HUD) encouraged mortgage companies, trade associations, investors (Freddie Mac and Fannie Mae), mortgage insurance companies, and mortgage market participants to come together and forge an alliance to help homeowners avoid foreclosures.
Their repayment program allows homeowners to distribute the overdue payments over a maximum period of 10 months, by adding a small portion of delinquent payments to the monthly mortgage payments.
Their loan modification program helps the homeowner pay the mortgage loan by implementing a change in the terms of the loan, thus making the monthly payments affordable. Real estate agents, individuals, and brokers are not a part of this alliance.
It's never advised to delay seeking help or counseling if one feels he may have to face foreclosure proceedings. Short sales are a feasible option to foreclosures, and many lenders are considering it to avoid initiating foreclosure proceedings. There are many ways to avoid a foreclosure. If nothing else works, best is to consider the cash for keys program.
Under this program, the homeowner who is unable to pay the dues negotiates with the lender, who agrees to provide a monetary compensation in return for the borrower handing over the keys. This saves the home from the wrath of the erstwhile home owner, who may end up destroying the foreclosed property.