What Is a Foreclosure Bailout?

Foreclosure bailout is the kind of refinancing which helps a homeowner to take on a new loan to pay off their existing mortgage and avoid going into foreclosure with his home. Usually foreclosure bailouts take the form of a federal program such as the Home Affordable Modification Program (HAMP) or the Home Affordable Refinance Program (HARP).

Traditional lenders are not very keen on working with home owners who are facing foreclosure due to financial hardship as even refinancing the home loan for such a person carries a high amount of risk. It is also a fact that lenders do not like their burrows to go into foreclosure. It means loss of money for them as well as the risk of their investment getting tied down in negotiations for a long time. For this reason many of time choose to work with the federal programs and help the homeowner to avoid going into foreclosure.

In most of the situations, you will need to have built up about 20% equity in your home in order to refinance for a foreclosure bailout loan with a traditional lender. However with the federal programs it is possible to refinance or modify your home loan even when the current value of the home is less than what you owe on the mortgage.