I wrote a post earlier this year about the two-pronged mortgage relief plan created by the Obama administration.  One part of the plan is designed to help as many as five million homeowners who would like to refinance their mortgage.  The other part is designed to help three to four million homeowners modify their existing loans to make them more affordable.

But one of the criticisms of both parts of the plan was that they didn’t really help homeowners who are deeply underwater -- owing much more on their mortgages than the current market value of their homes.  Last week, the Administration announced a third prong, designed to help those kinds of homeowners.

According to the press release issued by the Treasury department on May 14th, the Making Home Affordable (MHA) program now includes:

·         Foreclosure Alternatives provide incentives for servicers and borrowers to pursue short sales and deeds-in-lieu (DIL) of foreclosure in cases where the borrower is generally eligible for a MHA modification but does not qualify or is unable to complete the process.

·         Home Price Decline Protection Incentives will provide lenders additional incentives for modifications where home price declines have been most severe and lenders fear these declines may persist.

In a short sale, the homeowner sells the home for market value that’s less than the homeowner owes on the mortgage, and the lender forgives the difference between the sale amount and the amount owed.  When a homeowner is unable to make his mortgage payments, a short sale can often be in the lender’s best interest because it allows him to avoid the costly foreclosure process (for more details on short sales, see this blog post).

A deed-in-lieu of foreclosure is when the homeowner signs over the property title to the lender to satisfy the mortgage.  So the end result is the same as if the lender had foreclosed (the lender gets the title to the property) but without the added expense of foreclosure proceedings.

What do you think?   Click on the “Comments” link to join the discussion!