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Great News for “Underwater” Homeowners ~ Changes to HARP Program Announced

President Obama has opened up refinancing opportunities to more Homeowners who owe more than their home is worth (a.k.a. “underwater”) through the Home Affordable Refinance Program (HARP)!

If you are wondering what this means...and if you can benefit...here is some helpful information.  The President's proposal is not a new program, but a revision to the current Home Affordable Refinance Program (HARP).

One of the biggest changes under new HARP provisions: Now Homeowners can refinance no matter how “underwater” they are!  

Next, an Appraisal is not necessary IF Fannie Mae or Freddie Mac can electronically estimate the value through their valuation models, saving YOU Time & Money!  

Keep in mind that these updates to HARP apply only to people whose mortgage is currently secured by Fannie Mae or Freddie Mac...and whose loan was securitized by Fannie Mae or Freddie Mac prior to May 31, 2009. How do I know if my loan is owned or has been guaranteed by Fannie Mae or Freddie Mac?

Loan Lookup for Fannie Mae: www.fanniemae.com/loanlookup
Loan Lookup for Freddie Mac: www.freddiemac.com/mymortgage

Below are most of the highlights of the new changes to the HARP Program:
•There is no longer and Loan-to-Value cap of 125%

•The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.

•The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.

•The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.

•The current loan-to-value (LTV) ratio must be greater than 80%.

•The borrower must be current on the mortgage at the time of therefinance, with no late payment in the past six months and no more than one late payment in the past 12 months.

•Condominiums are already eligible under HARP.

•Appraisals are waived where an Automated Evaluation can be obtained.

•Borrower can go to any lender offering the HARP program and doesnot have to go to the lender that currently services their loan or the lender that originated their loan.

•The property must be the borrower's primary residence.

•The HARP Program will be extended until December 31st, 2013.

•There will be no Loan Level PriceAdjustors if the borrower refinances into a shorter loan term and lower Loan Level Adjustors for others. (This equates into a lower interest rate)

Helpful Links:

http://www.fhfa.gov/webfiles/22721/HARP_release_102411_Final.pdf
http://www.makinghomeaffordable.gov/  or call 1-888-995-HOPE (4673)
http://www.knowyouroptions.com/  or www.FannieMae.com/homeowners
www.FreddieMac.com/avoidforeclosure

Top 20 Frequently Asked Questions on Florida Short Sales and Foreclosures

Kevin Dickenson is a Palm Beach real estate agent with Prudential Florida Realty and an expert in Florida foreclosures and short sales. Mr. Dickenson is in the top two percent of 64,000 Prudential realtors nationally and has compiled the top 20 most frequently asked questions from buyers and sellers considering a short sale.



1. Are foreclosure websites like RealtyTrac accurate?

"I signed up a month to try it out and discovered that homes listed under the bank owned category were often nothing more than contractor or HOA liens," said Dickenson. "The data is seriously flawed in my opinion."


2. What is a short sale?

A short sale occurs when a borrower owes more than the home is worth and submits a request to the lender for a discounted payoff.


3. What is a lis pendens?
A lender will file a lis pendens (lawsuit) against a borrower typically after 3 months of non-payment. When the suit is filed, the borrower is now in the “pre-foreclosure” phase.


4. What is the best way to buy a Florida foreclosure?

If the home is listed on the MLS, find a good realtor who knows the process and use him as your guide. If the home isn't listed on the MLS, the borrower will need to be contacted because they are in control of the property until the home is foreclosed. Keep in mind that borrowers in default may be very difficult to get in touch with.


5. Can a buyer contact the bank to buy the home after the lis pendens is filed?

Only the deed holder has the authority to sell the home prior to a final judgment of foreclosure. The lender will not talk to any third party unless the borrower has given the individual written authorization. Another option is for the lender to sell the note, but most banks don't want to be bothered with a single small transaction.


6. Is the bank obligated to accept the contract price agreed to?

No. If an owner accepts a short sale offer, the contract MUST be contingent upon the lenders agreement to a discounted payoff and there is absolutely NO guarantee the lender will agree. The lender will hire a real estate agent or appraiser to perform a "broker price opionion" (BPO) to determine fair market value. Be prepared for a counter from the lender if the offer price is low.


7. What does the borrower need to supply to qualify for a short sale?

The bank will require a lot more documentation to discount the loan compared to what was supplied to obtain the loan. The lender will typically request two years tax returns, the last 3 pay stubs, a financial statement, four months of bank statements and a hardship letter as a minimum. Banks employ forensic accountants to make sure the borrower is in true financial hardship and keep in mind that a lot of people borrowed money for homes they couldn’t afford using no-doc stated income loans. A borrower who misrepresented income may refuse to provide the required documentation if it proves fraud. The buyers contract should contain a right to cancel clause if the seller fails to submit a complete short sale package to the lender within 10 days.


8. The offer and short sale package was submitted over four months ago and we haven't received a response. What’s going on?

Banks are overloaded with short sale requests. If a lis pendens has not been filed, the file is at the bottom of the banks pile. If a final judgment of foreclosure has been filed, this means a court date has been set and the home will be sold at auction in less than 30 days. In this case, the file is at the top of the pile. If the lis pendens is filed, it's in the pipeline and the buyer should be prepared to wait at least 4 months. A good negotiator should follow up with a buyer every two weeks and buyers will need to be patient.


9. Can a Seller accept more than one short sale offer and submit it to the bank?

The owner can accept a backup offer, but the new Florida FAR/BAR short sale addendum does not allow the seller to submit backup offers to the bank until the contract in first position is cancelled. Make sure your agent is using the most recent contract package and have an attorney review all documents.


10. Who is taking care of the house during the four to twelve months the buyer is waiting for the bank to approve a Florida short sale?

Nobody. Typically, the seller has vacated, the power is off and there is a good chance mold is growing in the home. The pool will turn green and black algae will burrow into the finish. Be prepared for the seller to strip the appliances, ceiling fans and light fixtures. Even worse, some owners will destroy the home out of anger. Make sure the contract provides a right of cancellation.


11. Should a buyer conduct a home inspection after the Seller accepts the offer?

No. It's best to trigger all key dates (inspections, mortgage commitment, etc) from the date the bank accepts the offer, not the seller acceptance. It's not uncommon for a house to start growning mold after sitting four to twelve months without air conditioning in Florida.


12. What happens if there is a first and second mortgage?

If there are two different lenders, the lender in first position controls how much is paid to the second lender. The second lender must agree to the amount and the deal is dead if they don't. If the second lender doesn't agree, the buyer has two options; (1) buy the second position note or (2) let the first lender foreclose.


13. Is there anything else that can kill the deal while the buyer is waiting for the bank to approve the short sale?

Yes.

A. The IRS can enter the picture and they always take first position (in front of the lenders).

B. The borrower could file bankruptcy.

C. The HOA could foreclose if the owner is delinquent.

D. The bank could refuse to pay the full amount of the delinquent HOA fee, but the buyer always has the option to pay.


14. Can the home be purchased from the court at foreclosure auction?

Yes, but court auctions are AS IS and access to the home for inspection purposes may be impossible. The buyer should also hire an attorney to review the title prior to auction day. Buyer beware!


15. The house was sold by the court at public auction and the bank bought it back. Can it be purchased now?

Yes. The bank has foreclosed and all liens (HOA, etc) have been eliminated. The bank will appraise the home to determine fair market value and it will be (1) listed on the MLS by a Florida bank owned real estate agent or (2) sold in a bulk offering package to investors or (3) listed with an auction company. The home is now an REO (real estate owned) and will be sold AS IS. There is a strong demand for Florida REO homes and they are usually under contract within days. It's not uncommon to have multiple offers and bidding wars on REO homes.


16. Who pays the realtors commission in a short sale?

The bank will pay the real estate commission. If you have concerns, add a clause stating the sale is contingent upon the lender paying the commission and any unpaid property taxes and liens.


17. Will the borrower be liable for the mortgage deficiency?

There is no guarantee the lender will waive the deficiency. Some lenders require unsecured notes from the borrower while others waive the deficiency in writing. It depends on the bank, the borrower’s financial situation and how good of a negotiator you hired. Dickenson recommends retaining an attorney with a proven track record to negotiate the short sale.


18. Can the house be rented while the borrower is in foreclosure?

Yes, but the owner must disclose the home is in foreclosure. If the lease is executed prior to the filing date of the lis pendens, the foreclosing lender must honor the lease and has the right to evict with 90 days notice. The lender will usually offer the tenant “cash for keys” to vacate after they take possession. If the lease is executed after the lis pendens is filed, the bank has the right to evict the tenant with 30 days notice.


If the home is in a community with a homeowners association (HOA), the board probably won't approve the lease if the owner is delinquent on HOA fees. Delinquent owners should consider leasing the property and paying the HOA from rental proceeds. "It's always better to have a tenant in the house rather than letting it sit vacant with the air conditioning off," said Dickenson.


If the property is a condo hotel, the rental management agreements usually contain a clause allowing the association to use rental proceeds to pay delinquent fees.


19. Can the HOA foreclose if the borrower is delinquent on HOA fees?

Yes, and it's a fairly simple process because there is usually no defense in this situation. "HOA's believe it's easy to rent homes once they take possession, but who's going to rent a house that could be foreclosed any day by the lender," said Dickenson.


20. Is there a defense against the lenders foreclosure action?

Click the free book Florida Defense Secrets in the right sidebar and then retain a bankruptcy attorney to discuss your options.

The Associations Decision to Foreclose

In nearly every case where a first mortgage of record exists on a property, the association's lien is subordinate or inferior to that mortgage. This means if an association elects to foreclose its lien and takes title to the property, it will take title subject to the right of the first mortgagee to foreclose its mortgage. Associations in the past were reluctant to foreclose when the mortgagee already commenced its own foreclosure action or when the value of the property did not exceed the amount of debt secured by the first mortgage. That's changing now.
Associations are now making the decision to foreclose more often under these circumstances. The primary reason for this is serious delay in the prosecution of the mortgagee's foreclosure case. These delays are brought on by a variety of factors including the sheer volume of cases handled by the mortgagee's law firm, protracted efforts to work with the borrower either to short sale the property or modify the loan, problems associated with serving necessary parties with the foreclosure complaint or locating original documents that are to be filed with the court, back log in the courts and even strategic decisions by mortgagees to slow down the process.

In some cases, associations can obtain favorable results when foreclosing, even against properties that have fair market values below their mortgaged amount. Sometimes the homeowner has the means to pay the association but has elected to spend money on other concerns. Because foreclosure results in the owner losing title to the property, if the owner has the means to pay and does not desire to walk away, they pay rather than lose title. Foreclsoure can be a powerful deterrent for owners who have the means to pay but elect not to or to pay late because they hear others doing the same. Another option is the association's right to rent the property once it takes title, if permitted by the association's governing documents. For some associations, the rental market is favorable and significant income can be recovered before the mortgagee forecloses and takes title.

Many times the owner cannot or will not pay and rental is not a viable option. However, associations still make the decision to foreclose for any number of reasons. Because so many mortgage foreclosures are being contested by owners raising defenses unique to the mortgage foreclosure action, and thus stalling the mortgage foreclosure case for months or even years, the association can effectively render those defenses moot as they relate to the mortgagee's foreclosure by foreclosing the association's lien. When the owner is divested of title by the association, the owner will drop or lose the fight against the lender in the mortgage foreclosure action, thus paving the way for the lender to take title and begin paying assessments. Another option for associations taking title is negotiating a short sale with the lender or tendering a deed in lieu of foreclosure to the lender. I have also filed motions in mortgage foreclosure actions notifying the court that the association has taken title and does not contest the mortgagee's foreclosure, therefore, speeding up the lender's acquisition of title. These associations understand the key is getting a paying owner into the property sooner rather than later. That way, more in terms of future assessments are recovered rather than lost while a mortgage foreclosure lingers on for years and no one pays the assessments.

What every association should consider is each case is different and the association is well served if it carefully considers all of its options and selects a strategy that works best in any given case. In this ever changing environment, there is no one size fits all approach.

Kevin Dickenson's comments assuming the HOA forecloses:

1. If the association elects to rent the property, they will need to disclose to the tenant that the property is in foreclosure and the foreclosing lender will have the right to evict with 30 days notice.  
2. If the lender subsequently forecloses on the HOA, the HOA will be entitled to the lesser of 1% of the mortgage amount or up to 12 months of unpaid HOA dues.
3. The HOA has a right to present a short sale offer to the lender and is in a position to demand full payoff of the delinquent HOA fee.  If the bank does not agree to a full payoff, the HOA can force the lender to continue with the foreclosure process at considerable expense.

Tenants of Foreclosed Homes often Unsure of Options

RISMEDIA, August 14, 2010—(MCT)—
Erin Kennedy-Florez was 10 months into a one-year lease on a home in Richmond, Calif., when she found a notice on her door saying the home was being foreclosed. 

She said she called her landlord, who told her that he was trying to refinance the house and to keep paying him rent. “I was paying the rent, but he was not paying the mortgage,” Kennedy-Florez said.

Soon after, the house went into foreclosure, and Kennedy-Florez immediately heard from a law firm representing Freddie Mac, the federal real estate lending agency that held the note on the home. “I had to decide whether I still wanted to be living there while they were showing it to potential buyers,” she said.

Kennedy-Florez’s situation reflects a problem that tenants rights’ groups say has been flying under the radar since the home foreclosure crisis began in 2008.

They say thousands of renters have lost security deposits, paid rent to former landlords who no longer owned the house, and agreed to move on short notice because they didn’t know their rights.

Kennedy-Florez accepted a cash settlement to move three weeks after the foreclosure in November 2009. She received the check the day she moved out but struggled to come up with the security deposit for a new rental in El Cerrito, Calif.

The landlord still owed her a $3,200 security deposit and has been paying it back in $100 and $200 installments, she said. 

“I jumped at the first place I could find,” she said. “I’m hoping this place isn’t shaky, too.”  Kennedy-Florez’s former landlord said the home had been foreclosed but that he had paid back the security deposit in full.

Some foreclosure situations have probably been resolved to the satisfaction of landlords and renters alike, said Gabe Treves, program coordinator with rights group Tenants Together, which is based in San Francisco.  But Treves said his agency has helped 3,000 renters squeezed between landlords who are behind on their mortgage payments and lenders trying to recover their investments.

“The vast majority of the tenants we talk to are having their rights violated,” Treves said. “Banks are being very aggressive in trying to get the tenants out, because they are stuck on the idea that if tenants vacate the home they can sell it.”

Wells Fargo Bank is committed to following all rules that protect tenants who are living in foreclosures, spokesman Jason Menke said. At the same time, Wells Fargo is in the business of lending money for home purchases, not in managing rentals, he said. “Generally, it’s our object to get a new owner into the house as quickly as possible,” Menke said. “It’s in our best interest and that of the community to return properties to the market.”

California Attorney General Jerry Brown launched an investigation into the issue last month, partly in response to the Tenants Together report.

Brown sent a letter in June to California banks, lenders, investors and law firms asking them to explain their procedures for dealing with tenants in foreclosed properties in an effort to find out whether laws are being broken.

Tenants are protected by a 2009 federal law that allows them to stay in their units for 90 days after a foreclosure notice is posted, but they have other rights as well:
-Renters can insist on staying in their units until the end of their leases, except when the new owner of a single-family home wants to move in.

-They can require banks and their agents to put all communication in writing.
-They are not required to take cash incentives to move out before the law requires.
-Harassment, such as changing locks without a court order, entering the home without permission or shutting off utilities, is illegal.

In addition, 16 cities in California, including Oakland, Richmond, Berkeley and Hayward, have just-cause eviction ordinances that rule out foreclosure as grounds for an eviction. Tenants have the right to continue renting the home indefinitely absent any other grounds for eviction unless the new owner wants to move in.
Wells Fargo sends tenants a letter outlining their legal options if it forecloses on the house where they live, Menke said. The bank often offers cash incentives for tenants to move out before the three-month period has passed.

The bank also honors lease agreements as long as the tenant has a copy of the lease. But if the bank sells the house, tenants have 90 days from the sale to move, said Wells Fargo spokeswoman Mary Berg.
“If the new owner wants to move in, then the tenant is no longer protected unless the new buyer decides to keep the renters there,” Berg said.

Lynne Codde and her daughter Shelby were renting an Antioch, Calif., home that was sold at auction. The new owner, a property management company, offered them $500 to move out immediately, she said. “We just kind of laughed at them and went online and found out what our rights were,” Codde said.

She said representatives of the company started showing up twice a week to ask them about their plans to move. One day a woman showed up who claimed that she had rented the house from the new owners.
“Three or four weeks in, they called and asked us how much it would take to get us out,” she said.

The property company eventually agreed to pay them $4,000, which they used to put down a security deposit and first month’s rent on a house in Fremont, Calif.

Homeowner's Help Hotline - Bloomberg

Crist signs condo bill designed to ease foreclosure crisis

Florida Gov. Charlie Crist signed into law Tuesday a sweeping condominium reform bill that's expected to help associations devastated by financial problems.

The bill, SB 1196, requires lenders that foreclose on condo units to cover 12 months of unpaid homeowner association assessments or 1 percent of the original mortgage debt, whichever is less. Previously, lenders had to pay six months of assessments or 1 percent of mortgage debt.

The measure also makes it easier for condo boards to opt out of expensive fire sprinkler, smoke detector and elevator upgrades that must be completed by 2014. In addition, the bill adds protections for bulk buyers of condo units and suspends voting rights for condo owners who are 90 days delinquent.

As foreclosures mount, condo advocacy groups have been urging Florida lawmakers to shift more of the burden of unpaid assessments to lenders. The associations face budget shortfalls because of the increase in vacant units. The reduced revenue has resulted in the postponement of maintenance and other services.

Strategic Default - Walking Away

Watch CBS News Videos Online

HAFA Increasing Short Sale Success

Foreclosure Consequences With The IRS - CNN - Sue Hunt - Consumer Credit...

Short Sale Flippers- Emerging Fraud Trend

Given increased defaults and declining property values in certain locations, the mortgage industry is experiencing an increase in short payoffs, sometimes called short sales. In fact, over the last two years, short payoff volume at Freddie Mac has grown more than 1,000 percent (2007-2009). This upward trend in volume leaves the market ripe for incidences of short payoff fraud.

What is a short payoff?

A short payoff occurs when a borrower cannot pay the mortgage on his or her property and is permitted to sell the property for less than the total amount due, at a loss to the lender, investor and/or insurer. All parties consent to the mortgage being paid "short," primarily because the property does not need to go through foreclosure. Please note that many legitimate short payoffs take place in the real estate market.

What is short payoff fraud?

According to a member of Freddie Mac's Fraud Investigation Unit, a slight variation of our general definition of mortgage fraud also defines short payoff fraud – "Any misrepresentation or deliberate omission of fact that would induce the lender, investor or insurer to agree to the terms of a short payoff that it would not approve had all facts been known." Misrepresentations in these schemes may include the buyer of the short payoff property, a subsequent transaction at a higher price, and/or the selling borrower’s hardship reason used to qualify for the short payoff. In many instances, the short payoff fraud will involve a "facilitator," engaged by either the listing agent or the selling borrower, to assist with negotiating the transaction.

How is short payoff fraud committed?

There are many variations of short payoff fraud. The example below is just one way this type of mortgage fraud can occur.

1. A seller (delinquent borrower) owes $100,000 on a property that is worth $80,000.
2. The short payoff facilitator negotiates with the bank to accept a $70,000 offer to purchase the property. In several instances, Freddie Mac has seen that this offer will be made directly by the facilitator or through an entity under his/her control.
3. The lender/investor accepts the offer for $70,000.
4. The facilitator neglects to disclose to the lender/investor that there is an outstanding offer between the facilitator and a second end-buyer for $95,000.
5. Both transactions close on the same day with the net difference being pocketed by the facilitator and increasing the lender/investor’s net losses.

At first glance, this may look like a legitimate short payoff. However, in this example, the fraud is the failure to disclose the second, higher offer. The facilitator is willfully withholding important information the same way a scam artist would, and the lender does not realize they are walking into a premeditated short payoff fraud scheme. Because the facilitator is deliberately withholding the higher offer, Freddie Mac also experiences a larger than necessary loss on this sale.

Short Payoff Fraud Prevention Red Flags

• Remain alert to the following flags, which may suggest short payoff fraud:
• Sudden borrower default, with no prior delinquency history, and the borrower cannot adequately explain the sudden default.
• The borrower is current on all other obligations.
• The borrower’s financial information indicates conflicting spending, saving, and credit patterns that do not fit a delinquency profile.
• The buyer of the property is an entity.
• The purchase contract has an option clause to resell the property.

Short Payoff Fraud Prevention

The following protective measures are recommended in order to detect and mitigate the severity of short payoff fraud:

• Review all short payoff documentation carefully, including the sale contract. This helps determine if there is an option clause to resell the property at a higher price without notifying the lender.
• Draft a short payoff arm’s-length affidavit/disclosure notice for all parties involved in the short payoff to help avoid any hidden contracts, or side agreements. The parties involved should be, but are not limited to: the buyer, seller, listing agent, selling agent, short payoff negotiator(s)/facilitator(s), and closing agent.
• Solicit information from your borrower.
• Inquire if the borrower is aware of any other parties involved with the short payoff other than real estate professionals.
• Is there a short payoff negotiator/facilitator involved?
• Is the borrower aware of any other purchase contracts on the property?
• Require an executed and signed IRS Form 4506-T, Request for Transcript of Tax Return,from each borrower and process the form to determine if the borrower’s qualifying income is accurate.
• Order an interior Broker Price Opinion (BPO) and review all other BPOs that have been ordered on the property (drive-bys and full interiors) to establish a high/low value variance. The BPOs should include a past and present Multiple Listing Service (MLS) listing history, as this will determine if the property was relisted in MLS while the short payoff is being processed.
• Review the Freddie Mac Exclusionary List to see if the parties to the short payoff are on the list. Seller/Servicers can access the Exclusionary List via the selling system, MIDANET®, MultiSuite®, and Loan Prospector®.
• Immediately notify Freddie Mac if you are aware of a second purchase contract for a higher price.

Important Freddie Mac fraud prevention resources

Leverage the following resources for more information on dealing with fraud:

Freddie Mac Fraud Hotline: 800 4 FRAUD 8
Mortgage Fraud Prevention Web Page
Quality Control Resources and Fraud Prevention Web Page

Kevin Dickenson's comment:
After careful legal research, it appears that investor/flippers can do this legally with full disclosure to all parties in the conract.  I would be surprised if the bank left enough spread in the deal to make it worthwile for the flipper.  I have not seen lenders accept short sale offers much below the BPO (fair market value).  The banks now require arms length affadavits that would cover this type of fraud.   Seller Beware!  Make sure you have proper legal guidance and a knowledgeable realtor before accepting a contract from a flipper.

Mortgage Forbearance- A Break you Can't Afford?

Forbearance now has the backing of the White House, but lowering or halting payments for now may simply delay the inevitable. Weigh your options carefully.

By Liz Pulliam Weston - MSN

If you're struggling to pay your mortgage, your lender may offer you forbearance. Think twice before you take the deal.

Can you afford mortgage forbearance?

Forbearance is a lender-approved reduction or elimination of your payments for a short time, usually a few months. Until recently, lenders made forbearance offers voluntarily, often in response to a temporary financial setback, such as a layoff, and the deals typically required borrowers to catch up on the missed or reduced payments within a year.

Under the Obama administration's recently announced expansion of the Home Affordable Modification Plan, or HAMP, lenders in the program will be required to offer forbearance to unemployed homeowners for at least three months and in some cases up to six months. Payments must be reduced to 31% of borrowers' incomes.

The details:

• Homeowners must meet HAMP eligibility requirements, which include owner occupancy (no rentals or investment property), a loan balance below $729,750 and an origination date before Jan. 1, 2009.

• Homeowners must ask for forbearance.

• Homeowners can't be more than three months behind with their payments. (They can be current and request forbearance; they just can't be more than 90 days overdue.)

• Homeowners must provide proof they're receiving unemployment benefits.

If a homeowner finds a job within the forbearance period and her regular payments would exceed 31%, she must be considered for a permanent loan modification.

Most such modifications so far have involved reducing the loan's interest rate and/or extending the loan term up to 40 years, but the Obama administration is now offering incentives to encourage lenders to forgive portions of some borrowers' loans.

If borrowers who got forbearance don't qualify for a modification that includes a reduction of their principal, though, they're expected to pay back the difference between their reduced payments and their regular payments, said Brian Sullivan, a spokesman for the U.S. Department of Housing and Urban Development.

"These mortgage reductions are not forgiven," Sullivan said. "They are repaid unless the borrower qualifies for a principal write-down."

If borrowers don't find employment by the end of their forbearance, they may be considered for foreclosure alternatives such as a short sale (in which the lender accepts the sale proceeds as full payment for the loan) or deed in lieu of foreclosure (which allows a homeowner to hand back the house keys in order to avoid full-blown foreclosure).

If your situation isn't too dire, it's possible that forbearance -- either the kind lenders offer voluntarily or the kind required under HAMP -- could get you back on track financially. But forbearance might not work, and it could leave you even worse off.

Here's what you need to consider:

Forbearance typically hurts your credit. When you don't pay lenders what you originally owed them, they typically take their revenge by reporting you to the credit bureaus as making late or partial payments. That can trash your credit scores.

That's certainly been true for the forbearance that lenders have been offering voluntarily, as well as for loan modifications, and it's likely to be true under HAMP forbearance as well, said real-estate expert Ilyce Glink, the author of the book "Buy, Close, Move In!"

When HAMP was first announced, "we were told loan modifications wouldn't hurt people's credit," Glink said. That turned out not to be true, she said, and signing up for loan modifications "destroyed a million people's credit."

How much damage you might suffer depends on how high your scores were to start with, with higher scores taking bigger hits. That's why you shouldn't seek forbearance if you have other ways of paying your mortgage, such as tapping savings.

But you also should be realistic if you're in trouble, because every option that would save your wallet some pain is likely to inflict some damage on your credit history and credit scores, Glink said. Forbearance would certainly have less of an impact than losing your home to foreclosure.

Forbearance may not be enough. Unemployment can last a long, long time, particularly in this recession. Half of the people who are unemployed have been without a job for 19 weeks or more. Even if you should land a job, you still may not be able to afford your mortgage, and there are no guarantees a mortgage modification would help.

"The first question you should ask yourself is, should you be trying to save this house?" said Glink, who runs ThinkGlink.com, a personal-finance site. "Can you catch up? You may think keeping your house is your top priority, but should it be?"

Forbearance may just delay the inevitable. In fact, some housing experts say the real benefit of the HAMP expansions won't be in preventing foreclosures as much as delaying them, since spreading foreclosures out over a longer period may reduce their impact on the fragile housing market.

But if you're likely to lose your house in the end, you may want to stop throwing good money after bad. Instead of making lower payments, you may be better off financially simply making no payments, saving your money and trying to arrange a short sale or letting your lender foreclose.

That's a hard pill for many to swallow, and you shouldn't consider it until you've weighed all your options, as I wrote in "Are you foolish to pay your mortgage?" But if you're deeply "underwater" (owing far more than the house is worth) and your lender isn't helping with a permanent loan modification, letting the house go may be the best of bad options.

If you're struggling, you should:

• Get help. Talk to a HUD-approved housing counselor about your options. You can find referrals here. These counselors are free and are a far better initial option than trusting law firms or others who demand big upfront fees (and who may just sign you up with the same programs as the HUD counselor).

• Make the right decision for you and your family. That could mean fighting to keep your house with everything you've got. It could mean throwing in the towel. Or it could mean something in between. Whatever decision you make, you'll have plenty of company as millions of other homeowners face the same struggle.

Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board and helps middle-class families cope at Building a Brighter Future.