If underwater borrowers can't refi or get a loan mod, alternatives to foreclosure exist

Ray Williams, president and founder, Greenway Capital Management

As published in Scotsman Guide's Residential Edition, May 2011.

When faced with distressed clients who cannot qualify for a refinance or a loan modification, mortgage brokers may think there's nothing else they can do to help. Brokers can, however, tell their clients about some government programs meant to help underwater homeowners, such as the Home Affordable Foreclosure Alternatives (HAFA) program.

Many homeowners who can no longer afford their mortgage payments will simply let their lenders foreclose on the properties without ever hearing about or knowing the benefits of HAFA. Brokers are well-positioned to advise their clients about the program, particularly when a lender has turned down the borrowers' refinance or modification application and the borrowers feel they have no other option than foreclosure.

The federal government's Making Home Affordable program includes various options to help troubled homeowners. Brokers likely are familiar with the Home Affordable Refinance Program, the Home Affordable Mod-ification Program and the Second Lien Modification Program. The comprehensive program also includes temporary assistance to unemployed homeowners via the Home Affordable Unemployment Program.

In addition, it provides incentives for homeowners and mortgage lenders and servicers who proceed with alternatives to foreclosure, such as a short sale or deed- in-lieu of foreclosure, via HAFA.

With the right information and knowledge, brokers  become key advisers to distressed homeowners.

As a HAFA expert, you can educate underwater borrowers about the choices they have other than foreclosure. You also can help homeowners reduce or eliminate the stress associated with foreclosure by offering pre- and post-foreclosure counseling. Remember, as of this past Jan. 31, a federal law — the Federal Trade Commission's Mortgage Assistance Relief Services rule (sctsm.in/MARSinfo) — prohibits companies from charging upfront fees for mortgage- relief services such as loan modifications or foreclosure-avoidance programs.

Through HAFA, distressed homeowners who use a short sale or a deed-in-lieu of foreclosure may be entitled to receive $3,000 for relocation expenses. Usually, borrowers will receive funds at the closing of a short sale or within five days after the servicer's acceptance of a deed-in-lieu, provided they have vacated the property and left it in acceptable condition.

Further, if homeowners who have vacated their home and rented another property can document that the home was their principal residence in the 12-month period before the date of the short-sale agreement, alternative request for approval of short sale or deed-in-lieu of foreclosure agreement, they may be eligible for the HAFA relocation expense. They must provide the documentation and must not have purchased another one- to four-unit property in the 12 months before that date.

In addition, according to HAFA guidelines, the borrowers' relocation does not need to be connected to re-employment or transfer of employment, and there is no minimum-distance requirement.

Mortgage professionals who arm themselves with this valuable information can help homeowners better understand their choices and therefore make educated decisions regarding the best route to take in trying to avoid foreclosure.

Ray Williams is the president and founder of Greenway Capital Management, a company that works with homeowners, real estate agents, lenders and mortgage-servicing companies to prevent foreclosures. Williams is a former mortgage loan officer and loan-officer-licensing educator. He currently provides foreclosure-prevention training to homeowners nationwide. The company provides education, counseling and mentoring services nationwide. Reach Williams at (888) 318-4069, ext. 700.