Last Wednesday, the Federal Housing Finance Agency (FHFA) announced big changes for those seeking to modify their home loans: for loan modifications of mortgages connected to Fannie Mae or Freddie Mac, things are going to be much easier in a few months. Weeks, really.
What is FHFA Doing About Mortgage Loan Modifications?
Both Fannie Mae and Freddie Mac will be offering a new program for home loan modifications beginning in July 2013. For Fannie Mae and Freddie Mac home loans, mortgage servicers and lenders are going to be forced by the federal government to offer borrowers that are delinquent for 90+ days an easier road to a modified mortgage.
The borrowers have to meet certain criteria. For one thing, they have to make three trial mortgage payments in a row to prove that they can make that modified mortgage payment. And they can’t be late on these payments.
However, if they do meet the criteria set by FHFA, then these mortgages will be modified by the lenders without the borrowers having to provide financial or hardship documentation.
That’s right: in the new “Streamlined Mortgage Initiative” program announced last week, eligible borrowers delinquent 90 days or more on their mortgage can get that home loan modified without all that paperwork — and the bank’s tricky evaluation process.
It’s almost like a magic wand: poof! no messy gathering of files and folders filled with paperwork, no dealing with bank officials who are supposed to review the documentation and approve the modification applications. Meet the criteria, apply for the program, get a new monthly mortgage payment amount, pay on time for 3 months, and voila! The mortgage is modified. Permanently.
Why is FHFA Offering This?
The official word from the agency is that “… Fannie Mae and Freddie Mac will offer a new, simplified loan modification initiative to minimize losses and to help troubled borrowers avoid foreclosure and stay in their homes.”
“The Streamlined Modification Initiative adds to the suite of home retention tools offered by Fannie Mae and Freddie Mac,” said FHFA Acting Director Edward J. DeMarco. “This new option gives delinquent borrowers another path to avoid foreclosure. We will still encourage such borrowers to provide documentation to support other modification options that would likely result in additional borrower savings.”
The goal here, really? To cut the mortgage loan losses that are hitting Fannie Mae and Freddie Mac — together, these two government-overseen organizations provide the majority of financing for home loans in the United States.
You don’t recognize their names? Understandable. What these two federally-created entities do is buy home loan mortgages from banks after the banks have closed on the mortgage with the home buyer.
You, as the buyer of the home and the borrower on the mortgage, don’t need to approve this deal: your lender can decide all by its ownself to resell the note it made with you to either Fannie Mae or Freddie Mac.
Why do this?
Fannie Mae and Freddie Mac do this in order to free up the bank to go out there and make more mortgage loans to more people wanting the American Dream of owning their own home. Afterwards, Fannie Mae and Freddie Mac can stash that mortgage into its own files and keep it as an asset, or alternatively, throw that mortgage into a stash of similar loans, tie them up in a nice bow, and sell them in a bunch as “mortgage-backed securities”.
Larry Tolchinsky’s Tip:
This new program is going to help lots of people, and Florida home owners considering a mortgage modification or dealing with an underwater mortgage or a potential foreclosure will be considering this option. The new Streamlined Mortgage Initiative is definitely written to help borrowers, not coddle the lenders.
That’s refreshing, isn’t it?
However, this isn’t the only choice for Florida home owners in a mortgage bind and it should be carefully weighed along with other options — like negotiating an individual deal with your banker, one on one. Why?
These Streamlined mortgage deals aren’t going to be offering the best bang for your buck. What’s being tossed off the table with all that paperwork is the negotiation to get you the best and LOWEST mortgage payment to meet every month. As Leslie Peeler, Fannie Mae Senior Vice President, pointed out in a statement released last week (we added the highlighting here):
“Our goal is to give homeowners an efficient way to avoid foreclosure and remain in their home. This streamlined modification initiative will cut through the paperwork and simplify the process of securing a permanent mortgage modification for struggling borrowers.
It is important for homeowners that are current on their mortgage to do everything they can to avoid missing payments. A refinance can provide greater savings than a modification and would avoid the credit impact of a delinquency. In addition, homeowners should continue working with their servicer because the options that are available by documenting a hardship will often create a more affordable monthly payment than a streamlined modification will. Finally, all homeowners must know that we will be using all the tools available to us to screen for potential strategic defaulters.
We believe that this new option will help homeowners avoid foreclosure by creating a sustainable monthly payment in a simple, straightforward process.”
Which means that savvy Florida borrowers are still going to find a Florida foreclosure defense attorney who knows local banking practices and working together, negotiate that loan modification not in a cookie-cutter approach like the new Streamlined program, but instead based upon the unique circumstances facing that home owner.
Do you have questions or comments? Then please feel free to Chat with Larry in the comments below, at email@example.com, or (954) 458-8655. If you have a specific or personal situation, please call or email Larry because he can’t answer specific fact questions in general comments.
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