PREDICTION: 6.5 million U.S. foreclosures by end of 2012.

-Credit Suisse Research Report 04/2008

SOLUTION: Federal Bailout to help 400,000 homeowners by Sept 2011.

-U.S. Government

Let's assume this prediction is accurate. To put things into clearer perspective, 6.5 million is the equivalent to 12.7 percent of all U.S. homes with mortgages. So let's also assume that this massive federal housing bailout will be the government's last, since there's only so much money they can print. Now let's do some simple math: 400000/6500000=6.15%. This means roughly 6% of the total foreclosure victims in the United States will obtain federal aid once the The Housing and Economic Recovery Act of 2008 takes effect in October of this year.

6% of Americans facing foreclosure within the next 3-4 years can *possibly* benefit from this Federal aid, named the "Hope for Homeowners Program." This financial housing assistance will come in the form of a new FHA (Federal Housing Administration) refinance to get delinquent borrowers out of loans they cannot afford and into permanently fixed interest rate loans they CAN AFFORD. Most mortgage brokers refer to this as an FHA "short refinance" because the existing lender will have to accept a short payoff (for less than what is owed) in order to make this work. ALL HOMEOWNERS THAT CAN QUALIFY FOR THIS FEDERAL HOUSING AID SHOULD NOT HESITATE TO APPLY. The benefits far outweigh what you must agree to in exchange.

How do you know if you could be one of the lucky 6%? You can narrow down the possibility by finding out how one would even qualify for the Hope for Homeowners Program. Let's take a minute to review some of its key highlights.

The Hope for Homeowners Program will give you:

• A permanently fixed 30yr FHA loan

• 10% of renewed equity back into your home

• What more can you ask for? It's a fresh start and you can call your home a true investment once again.

In order to qualify for the Hope for Homeowners Program you must:

• Live in and own your ONLY HOME. Anyone holding investment property or a 2nd home is automatically disqualified. *If this is you, please read below for alternative relief.

• Be able to prove ON PAPER that you can afford the new principal and interest payment, plus monthly mortgage insurance, property taxes and hazard insurance. *Find out if you can income qualify now.

•  Be late or in danger of foreclosure.

• Be willing to acknowledge that you did not intentionally go late in order to qualify for the program. Otherwise, fines and federal incarceration will apply.

• Be willing to share future equity with the federal government.

If you've made it this far, you must be able to convince your lender to:

• Write down the principal balance down to market value PLUS an additional 10%, which I would strongly advise against doing on your own. Here you've got only one shot at presenting your situation in such a way, where the lender agrees that a short payoff is better for them in the long run. Know that the pending legislation will in no way require or incentivize your lender to agree to take less money than you originally committed to pay. A professional loss mitigation agency can help you prove that it is in the lender's best interest to accept less. Remember only 400,000 homeowners will be helped and you want the best representation to make sure you are one of them.

Still think you can be one of the lucky 6%? Maybe that's why it was strategically called HOPE for Homeowners Program, because that's all it really is? Please don't misunderstand me. I applaud the U.S. government for stepping in to offer help, and in my opinion, this crisis housing situation was collectively brought about by us Americans pursuing the American Dream- to own a home no matter what the price. In retrospect, the government should have stepped in years sooner, but we the people would have despised the feds for interfering with the free market - which would have been very UNAmerican. Without putting the blame on any one group of people, agency, or bank, this is an unfortunate circumstance that must be dealt with. The Hope Program is great, but it's too restrictive and just not enough. Although some goverment assistance is clearly better than none, most of us simply cannot rely on the feds to bail us out. If you cannot qualify for federal assistance but your home will certainly fall victim of foreclosure if nothing is done, please take matters into your own hands and seek professional help.

Here are some home retention alternatives that are available today (in order of greatest net benefit to the homeowner):

SHORT REFINANCE (GREATEST)

A short refinance is where your existing lender agrees to a short payoff, by reducing your principal balance to market value PLUS enough to cover the new lender's equity requirements AND refinance closing costs. In many ways, this is exactly what the Hope for Homeowners Program offers. However, the key difference here is that successful short refinances now happen in cases where the borrower is NOT late - the reason being, you will not qualify for a traditional FHA refinance if you have been late on your mortgage within the past 12 months. *The exception is FHASecure, where the program grants exceptions to those borrowers who have gone late as a result of an interest rate increase. If you are successful with a short refinance, you will not have to share your equity with the government. In fact, all of the loss mitigation alternatives mentioned here will not require that. Why an FHA refinance and not a conventional or jumbo? FHA guaranteed loans are the only ones that will refinance up to 95% of a home's market value. Otherwise, your existing lender would have to write down enough to give you 10% equity to qualify for a conventional loan PLUS more to cover closing costs- and that's simply not going to happen.

SHORT MODIFICATION (GOOD)

A short modification is where your existing lender agrees to write down your principal balance to an amount you can afford and re-sets your loan terms to a 30yr fixed payment. Loss mitigation efforts that result in short modifications most often happen in cases where the borrower is seriously delinquent and cannot qualify for a new refinance loan. An example of a case, where a short modification might be considered, is in satisfying all of the qualifications for the Hope for Homeowners Program EXCEPT the requirement to own only one home. To explain why a short modification may be less desirable than a short refinance, in a short mod the principal balance may not be written all the way down to market value. It is possible that you may not afford a principal and interest payment at your present loan amount, but you could afford it if it were brought down partially lower (but perhaps not as low as market value). On the other hand, in a short modification there are no refinance closing costs due to the fact that your existing lender simply modifies the balance and terms of the original note.

TRADITIONAL LOAN MODIFICATION (OK)

A "traditional" loan modification is where your existing lender modifies the terms of the original loan agreement, without writing down the balance. Traditional loan modifications typically stop an interest rate from re-setting, where you could otherwise afford to pay. Traditional loan modifications are permanent solutions, with no future adjustments to the interest rate and payment after the new agreement is in place. This could be considered permanent financing without having to refinance into a new 30yr fixed loan.

SHORT-TERM MODIFICATION (ACCEPTABLE)

Now short-term modifications offer the LEAST benefit to the borrower, while giving the GREATEST net benefit to the lender (or their investors). Short-term modifications happen mostly in situations where a borrower attempts to work out a loan modification directly with their bank. This is a temporary solution that makes your payments more affordable until something else can be done. What that something else is, is simply more time. Because banks would rather keep the original loan terms intact, they can offer temporary relief in hopes that the market will recover OR you the borrower will soon make more money. For you this means your home will not foreclose now, but it will instead delay the process until your short-term mod agreement expires. At the time of expiration, your loan usually re-sets to the original terms that put your home in jeopardy in the first place. With all of that said, a short-term modification might be the only option the lender will offer, but you at least avoid foreclosure and remain in your home.

If you're like me, you've probably spent countless hours researching loan modification solutions for your home and family, and this is only one of the many articles you've read on the topic. But hopefully, I've been able to introduce some new possibilities here that you haven't yet come across. Remember, the idea of a lender to make a financial sacrifice for a borrower is a completely new concept for them, so it may take time for short refis and short mods to become more widely accepted. As is it now, it doesn't look like lenders have very much collateral to secure their debt. As their collateral continues to fall further and further down, they should start to accept short payoffs by the millions. Just be patient and don't lose HOPE.

Pre-Qualify for a Short Refi Now

by RANDY MIGUEL | Loan Modification Counselor

Equitas Capital, Los Gatos | Associate Broker

Morgan Financial, Granite Bay | Direct FHA Lender

Office. 408.216.7274

Fax. 866.876.8514

http://www.randymiguel.com

Right now, we are witnessing first-hand the worst real estate crash in U.S. history. Someday many of us will look back at years 2007-20?? and say, "Yeah, those were the days when we owed more than our houses were worth." But in the present day, in the midst of our housing crisis, we must decide what to do about it. Bottom-line is, nobody wants to lose their home, but most would rather lose that than lose money- and keep on losing it. So do I sell short or walk away? These are two things that come to mind when homeowners think about their equity lost and cutting their losses short. Unfortunately, both of these choices involve moving out of one's home and all of the trauma that goes along with it. There's hardly a bright side to either one, but what if there were another way? Today, I want to give you an alternative option to consider, which may also be for the greater benefit of our national economy: SHORT REFINANCE.

Fed Chairman Ben Bernanke said it best,
"With low or negative equity... a stressed borrower has less ability (because there is no home equity to tap) and less financial incentive to try to remain in the home. In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure."

In layman's terms, reduce the loan balance or else the house forecloses. The easiest way for me to explain the way a short refinance works is to draw the analogy between that and a short sale. By now we've all heard or spoke about someone short selling their property, typically because they can no longer afford the payments and cannot sell it at a high enough price to payoff their existing lender. In a short sale, the lender's potential losses- by having to foreclose on a home and incur the costs of re-selling it on the open market- are reduced by accepting a buyer's offer for less than what is owed. Obviously, no bank or investor wants to accept a payoff of less than what they originally lent out, but by not accepting such an offer they run the proven risk of recouping far less than that later. Most importantly, a short sale pays the bank whatever they can get for the home NOW. In finance, we like liquidity and appreciate the time value of money. A bank can use this partial payoff and quickly re-allocate it to less risky borrowers who pay on time, thereby realizing an immediate profit. It takes at least 6 months for a bank to recover a home once a borrower misses their first payment! As bank's must report quarterly profits, 6 months can be an eternity for them to wait their money. [With new CA foreclosure protection bill SB 1137, lenders could expect it to take even longer!] Okay, I think we can all agree that a short sale may be in a bank's best interest if doing nothing can result in greater losses. The concept of short refinancing works in the exact same way, except in a short refi the current homeowner remains the homeowner. Let's compare these two concepts more closely:

• In a short refi, the lender accepts a payoff for less than what is owed, just like a short sale. This is fairly easy to understand, as a full payoff would be considered a straight forward refinance.

• In a short refi, the lender should reduce the principal balance for LESS THAN the true market value of the home. This may not be so simple to comprehend as one might think the bank would be giving up more money than necessary. However, if a lender does not leave some equity in the home, a new lender would not take the risk of refinancing it. Its investors require a little cushion in the event that property values drop further. Presently, the highest loan-to-value ratio loans are being offered by FHA (Federal Housing Administration), which are capped between 95%-97.5% depending on loan amount. Even at these high levels, banks must write-down an additional 2.5-5% in order for an FHA guaranteed loan to come to the rescue and pay them off. 2.5-5% is not too much to ask, considering the bank would pay realtors a 6% commission for short selling the same home (not to mention the added closing costs). The new FHA bailout plan calls for lenders to forgive principal balances down to market value PLUS an additional 10%! *The FHA bailout is targeted towards delinquent borrowers, which is not being discussed here. More on this topic later...

• For a short refi, YOU DO NOT HAVE TO BE LATE, unlike a short sale. *If you are or have been late, ask me about a "short modification." In fact, most refinance options are limited if you have been late on your mortgage. Present underwriting guidelines for FHA loans do not allow mortgage lates, unless those lates happened AFTER an Adjustable Rate Mortgage payment increase (See FHASecure). On the other hand, you may need to prove that there is imminent threat of becoming late if they decide to do nothing. For instance, you have a negative amortization loan that will balloon in payments 2X what you are paying now, and you will certainly default if the future payment is not reduced. Threatening to walk away, simply because there is no equity, may not justify a short refinance.

• To enter into a short refinance negotiation with your lender, you do not have to wait for Congress to pass the FHA bailout plan (a.k.a FHA Housing Stabalization and Homeownership Retention Act of 2008). Short refinancing involves direct negotiation with your lender, at your lender's option, just like a short sale. Laws do not need to be enacted before a lender can agree to accept a lesser sum for payoff. For them, this is purely a business decision. NOTE: Lender participation in the pending FHA bailout is also completely voluntary.

• To enter into a short refinance negotiation with your lender, you should be able to prove financial hardship, just like a short sale. It may be difficult to convince a lender to reduce the total debt owing if you can truly afford to pay it. Remember, a lender may not be willing to accept less money unless they risk losing more by doing nothing. Lenders are aware that many borrowers would rather continue paying on their high cost mortgages instead of sacrificing their good credit. At the same time, you must be able to prove ON PAPER that you can afford principal and interest payments at the reduced loan amount.

• For a short refi, you may want to take on the services of an experienced Loss Mitigation Agency to pre-qualify and negotiate your case. Beware of Loss Mitigation / Loan Modifcation Fraud. Many fly-by-night companies have sprouted to take advantage of homeowners in distress. My partner-agency has been in the business of loss mitigation for over 23 years. The charge for my services is a flat fee of $2200 deposited upfront into my broker trust account, but collected only after I've obtained a resolution from your lender. If I am unable to obtain a resolution within 120 days, your advance fee shall be full refunded.

If they are so similar, why aren't short refis as common as short sales? I think it has a lot to do with banks having to deal with the idea of rewarding their borrowers for not honoring the original terms of their agreements, and the domino effect of having to reduce balances for otherwise "good loans." Things are different now. Banks have greater incentive to workout terms with existing homeowners, since their repos simply aren't selling. Besides, I think we're way past the concern of rewarding speculators and investors who made bad investment decisions. The overall health of the national economy is at stake.

Since early 2007, I have been deeply concerned about how I can assist my clients who have zero or negative equity in their homes. Finally, I can help. It is my strong belief that offering home loan and loss mitigation services now go hand-in-hand, as many home sales and refinances cannot and will not happen unless principal balances are negotiated DOWN. Please stay tuned for my follow-up newsletter on "short modifications." But if you must know now, visit my website at http://www.RandyMiguel.com. Hope you found this information helpful and feel free to pass it along.

RANDY MIGUEL
a California Mortgage Broker
Office. 408.216.7274
Fax. 866.876.8514
http://www.randymiguel.com