Bankruptcy / Loans / Mortgages

HARP vs. Bankruptcy

The federal government is at again – they’re taking another stab at the housing crisis. The Federal Housing Finance Agency is working with the Obama administration to save up to 1 million homeowners in underwater properties.  The agency is aiming to revamp Home Affordable Refinance Program (HARP) to give underwater homeowners an opportunity to refinance their properties and avoid foreclosure.  But is this really going to help?  Right now, many underwater homeowners are filing bankruptcy and letting their homes go to foreclosure.  But will this refinance program save them or simply delay the inevitable?  Probably the latter. As is, the HARP program does nothing to really help the homeowner but does a lot to help mortgage companies. Let’s compare the advantages of HARP to bankruptcy:

Reduce Monthly Payments

HARP boasts that it can help homeowners reduce their monthly payments by as much as $200; but other experts contend that the average monthly savings may amount to only $26.  On the other hand, if the same homeowner files bankruptcy, they can cram down their 2nd mortgage in Chapter 13 bankruptcy and literally reduce the total amount of debt owed on the home.

Handling Delinquency

If you’re behind on your mortgage payments, forget about HARP, you can’t qualify.  But if you file for bankruptcy with a delinquency on your mortgage, you can pay it off over a 3 to 5 year period in Chapter 13 bankruptcy.

Life Of The Loan

Most Americans have a 30 year mortgage; but for some reason those who designed HARP don’t seem to understand that.  Under HARP, homeowners must refinance their mortgage to a 20 year term. The savings you may have gained by refinancing are destroyed by a shorter mortgage term. Bankruptcy makes no such demands on the debtor, allowing the debtor to keep their 30 year mortgage and get on with their life after their bankruptcy discharge.

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Reed Allmand is Board Certified in Consumer Bankruptcy by the Texas Board of Legal Specialization. He is the managing partner of the law firm Allmand Law and NACBA’s State Chair for the Northern District of Texas. He has been practicing bankruptcy law for nearly 10 years and has handled more than 3,000 bankruptcy filings. Allmand has appeared on ‘Money for Breakfast’ on Fox Business News and is the author of “The Truth about Bankruptcy.” To speak with Mr. Allmand or to schedule an interview, please visit Dallas Bankruptcy.