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Government Debt Relief - Is It An Option?

Government Debt Relief

Updated: Oct 21, 2014

Highlights

  • Government debt relief programs are limited, but options do exist.
  • HAFA and HAMP loan modification programs can provide government sponsored mortgage relief.
  • Compare all your debt relief options, including credit counseling, debt consolidation and debt resolution.
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Tips and Advice to Find Government Debt Relief and Grants

Does government exist? If so, what exactly are your options?

There are some misconceptions about what the government can actually do to provide debt relief.

In short, the federal government does have assistance programs and grants, but there is no such thing as a straight-forward issued by the government where your debts disappear magically.

Quick Tip

Understand how to get rid of your credit card debt with a no-cost, no obligation analysis of your debt resolution options from a .

Government Debt Relief and Grants

Many advertisements and articles claim an abundance of federal grants exist to provide debt relief. They say you just have to know where to look.

But have you ever noticed that they never tell you where to look?

That's because these grants to help you pay off your debt do not exist. There are a variety of programs that assist low-income families with such necessities, such as rent food, and certain utilities, but there are no grants that help pay your credit card debt.

Beware of companies advertising such grants: these are usually scams that are trying to get you to pay for information that is publicly available and that won't help you solve your debt problems.

If you are struggling with debt, you need to look at the different possible solutions available. Start by examining the solutions for the specific kind of debts you have. Look at the government debt relief options as well as others offered by professional firms. Look at do-it-yourself solutions, too.

Student Loan Consolidation

Individuals or parents struggling to repay one or more federal student loans can find some relief in federal .

This program allows you to consolidate your loans into one that has a lower interest rate and one convenient monthly payment. However, this form of debt relief applies only to federal student loans that you took out. Any private student loans are not eligible for a federal student loan consolidation.

Mortgage Debt Relief

One area where a lot of government assistance is available is in the realm of mortgage debt and possible foreclosure. Due to the subprime mortgage meltdown, the U.S Department of Housing and Urban Development (HUD) now offers some new programs to assist homeowners struggling with their mortgages.

(Editor’s Note: The HARP 2.0 mortgage program is a lifeline the government is throwing to underwater borrowers. Read about the and how it can help you, if you owe more than your home is worth.)

(MHA)

In 2009, the Obama Administration created the Making Home Affordable (MHA) program. A 17-page document titled outlines the 2009 provisions for trial loan modifications.

An eligibility helps homeowners determine if they may qualify. This program has two components: 1) mortgage refinancing through Home Affordable Refinance Program (HARP); and 2) mortgage modification through Home Affordable Modification Program (HAMP). There are provisions that also include homeowners with second mortgages (liens) or even third mortgages. and answer basic questions on the program. The Web site provides eligibility information, how to request a modification, and additional facts.

(HAMP)

The page describes succinctly the requirements that borrowers must meet to be eligible. In a nutshell, HAMP is designed to help homeowners and servicers avoid foreclosure by modifying the terms of the loan to make the mortgage payments affordable for the long-term.

The HAMP qualifying criteria include:

  1. Borrower is delinquent on their mortgage or faces imminent risk of default
  2. Property is occupied as borrower's primary residence
  3. Mortgage was originated on or before Jan. 1, 2009 and unpaid principal balance must be no greater than $729,750 for one-unit properties.

The HAMP overview page contains documents the borrower must complete to participate, including: , , and .

(HAFA)

HAFA alternatives are available to all HAMP-eligible borrowers who:

  1. Do not qualify for a Trial Period Plan
  2. Do not successfully complete a Trial Period Plan
  3. Miss at least two consecutive payment during a HAMP modification; or
  4. Request a short sale or deed-in-lieu.

HAFA is complex with numerous guidelines set by the Treasury Dept. These new guidelines do not apply to loans by Fannie Mae, Freddie Mac, FHA or VA because these programs have their own short-sale programs that vary from HAFA.

HAFA provides incentives to mortgage lenders (servicers), seller, and other lien holders. There are deadlines that the mortgage lender and subsequent lien holder have to follow to provide timely progression on the sale of the property. HAFA simplifies and streamlines the short sale and deed in lieu process by providing a standard process flow, minimum performance timeframes, and standard documentation.

HAFA Details

A provides a description of the current guidelines plus has the latest documents borrowers need for the short sale or deed-in-lieu of foreclosure. A 45-page HAFA provides detailed information.

As mentioned, servicers need not participate in MHA, HAMP, or HAFA, though most do. However, the reality of the deadlines depends on the rigorousness of the servicer to implement the provisions.

The Treasury Dept. picked Freddie Mac to serve as the compliance agent and Fannie Mae as program administrator. The guidelines for payments is still under development by Fannie Mae as this was written.

Regarding credit reports, the servicer still may report to the consumer credit reporting agencies (i.e., Equifax, Experian, and TransUnion) the account as “full file” status. The 45-page document mentioned above contains further details on the credit reporting.

HAFA For Existing Borrowers (Sellers)

Homeowners selling their homes with a deed in lieu of foreclosure or short sale will benefit from a more streamlined process that includes deadlines the servicers must follow, and a $3,000 payment to cover relocation expenses. Also, borrowers must receive disclosures of costs and net proceeds the servicer requires. The HAFA eligibility requirements are the same as the original HAMP.

The bank or financial institution servicing the mortgage (called a “servicer”) must respond to a reasonable offer within 10 business days of receipt of all the required documents including the signed purchase offer and Request to Approve a Short-Sale (RASS). The servicer still has the option to reject the offer. However, this timeline will improve the chances of the borrower and purchaser to finalize the sale quickly.

Closing will occur in no less than 45 days, unless all parties agree to a shorter timeline. The most important provision for the borrower is that if the servicer participates in the HAFA program, and the first and second lien holders accept the incentives, then there can be no deficiency judgment. As with any other debt forgiveness, the servicer will issue any deficiency on IRS Form 1099-C and may be taxed as income. As mentioned previously, see the Bills.com resource to learn how to avoid taxes on forgiven mortgage debt.

HAFA For Purchasers (Buyers)

Read the supplement directive mentioned above for the program terms and conditions for purchaser obligations.

For example, the sale and purchase must be an “arms-length” transaction, which means that the buyer and seller must not be related by marriage, family, or commercial enterprise. The buyer also agrees not to sell the property for 90 days after closing. The 10-day time period is a great improvement because it has been common for purchasers to wait months for servicers to review offers.

Buying a Home

The FHA is the U.S. Federal Housing Administration which is a division of the Department of Housing and Urban Development (HUD). The FHA does not make loans directly, but guarantees loans that other lenders make that meet FHA guidelines. An FHA loan to purchase a home can help you buy a home with a down-payment as small as  3.5 % of the purchase price.

An allows borrowers to buy a "fixer-upper," financing the home purchase and also include the cost of repairs and improvements in their mortgage loan. The 203K also has the advantage of the low down-payment requirements of an FHA loan.

If you are interested in home in a rural area, you may qualify for a USDA loan. Both "guaranteed" and "direct" loans are available though the Farm Service Agency. See the Bills.com resources and to learn more.

If you are looking for down-payment assistance, check with your state, city, or county government. Some jurisdictions offer grants or other down-payment help to first-time buyers. Even if no financial aid is available, you can usually find some good advice and tips on buying a home.

Conclusion

If the above debt solutions do not apply to you, there is no need to worry. Federal assistance is not the only way to reduce your debt. Educate yourself about all the and improve your financial health today.

4.5
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(29 Votes)

32 Comments

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  • JA
    Jun, 2014
    Jillian
    Are there any cash loans for bad credit that can help pay a car loan?
    0 Votes

    • BA
      Jun, 2014
      Bill
      Not many lenders will want to lend you money if you cannot afford your existing car payment. Speak to your auto finance company about refinancing the loan so that it has a longer term, which will lower your monthly payments. The downside to this strategy is the lifetime cost of the loan will be higher.
      0 Votes

  • DC
    Feb, 2014
    dwpuchi
    I will love to recive in spanish this information I understood but some time I kind express fluent english... thanks You are great and gave me hope again... thanks
    0 Votes

  • MM
    Feb, 2013
    Marvin
    I've received a few emails with information about a special "Obama refinance program" that could lower my interest rate. Do you know what they're referring to?
    1 Votes

    • BA
      Feb, 2013
      Bill
      What you received was a marketing email that was stretching the truth. There are some different programs such as the HARP program and FHA and VA refinance program that could lower you interest rate, depending on your current loan's rate and your ability to meet eligibility requirements. However, there is no specific Obama refinance program. The closest thing to it is the #myrefi program, which is a proposal by the President to expand refinancing opportunities.

      If you have not refinanced recently, rates are near historic lows and you should see if refinancing will save you money.
      1 Votes

  • BR
    May, 2012
    Bobby
    We have an interest only loan, we owe more than what the home is worth. We asked our mortgage lender for a loan modification and they turn us down. What can we do we tried to refinance, lenders said we owe more than home is worth. Need help fast!!!
    1 Votes

    • BA
      May, 2012
      Bill
      Bobby, your options depend on whether your loan is backed by Fannie Mae or Freddie Mac. If it is, look into the HARP mortgage program.

      If not, there are not a lot of options. You can speak with a HUD approved housing counselor for free, at 888-995-4673. You can also keep following the news, as there is talk about expanding the HARP program to loans not backed by Fannie or Freddie.
      1 Votes

    • BR
      May, 2012
      Bobby
      Will HAMP help with our problem with an interest only loan?
      0 Votes

    • BA
      May, 2012
      Bill
      Bobby, the reason I suggested you call HOPE NOW is a HUD-approved housing counselor can speak to you about the HAMP program, discussing whether you qualify for a loan modification.
      1 Votes

  • PW
    Aug, 2011
    Phillip
    I have a question, I currently work in local law enforcement agency. So needless to say my pay is not the best. I recently got married, and my wife had over 100K in student loans, +60K was in private and the remaining in federal. So just in her student loans I am now shelling out and extra 1K a month to pay just on that. Now she got her loans before we even got married. Am I actually held liable for these loans or could they (Loan Company) come after me for late payments or non-payments because we are married? As of late, I was forced to pick up extra work just to make ends meet. My actual take home pay is 2,200.00 a month. My house note is now +1500.00 a(was 1,200.00) month due to the increase of insurance. I was wondering if there are any relief programs out there for student loans Private or Federal? I am trying my best to keep up with the debt like a responsible bill payer should, but I can't always bank that the extra work will always be available for me to work/earn. I am sure one of your question would be "did you look into consolidating your loans?" The answer to that is yes, according to my wife. she claims she did look into it but there was nothing out there that would help. Thanks to this current economy being in such bad shape. My wife is still unable to find a job in her field of study. So, If there is any insight you could provide it would be greatly appreciated.
    0 Votes

    • BA
      Aug, 2011
      Bill
      Consult with a lawyer in your state to learn exactly what liability a spouse has, if any, for one spouse's pre-marital debt. In general, in common-law family-law states, spouses do not have liability for the other spouse's debts. In community property states, the answer to that question is much murkier.

      Has your spouse looked into a deferment or forbearance?

      You mentioned working in law enforcement. There are student loan cancellation programs available for people working in public service, but these programs are not transferable to the public servant's spouse.
      1 Votes

    • RS
      Nov, 2011
      Ry
      No one can go after you for students loans incurred by your wife prior to your marriage.
      0 Votes

    • BA
      Nov, 2011
      Bill
      Not so fast. In some community property states, community assets can be pursued if a spouse becomes delinquent on a debt and the creditor receives a judgment. In California, for example, the separate assets of a judgment-creditor's spouse are fair game for liens.

      It is rarely a good idea to make blanket statements about consumer legal rights and liabilities.
      2 Votes