Mortgage rescue plan is detailed
The Chicago Tribune
By: Mary Ellen Podmolik
March 28, 2013
The overseer of Fannie Mae and Freddie Mac is directing mortgage loan servicers this summer to begin offering a simplified mortgage modification to some struggling borrowers whose loans are backed by the two enterprises.
Beginning July 1, the Federal Housing Finance Agency will require loan servicers to reach out to eligible, seriously delinquent borrowers and offer a three month trial loan modification without the borrower providing financial documents or hardship letters. The payments could decrease if the homeowner documents their income and financial difficulty.
While different than the Obama administration's Home AffordableModification Program, the plan detailed Wednesday is similar to a short-lived effort under HAMP that offered no documentation trial modifications. That effort, designed to quickly get struggling homeowners into the program, also led to redefaults.
Mortgage principal write-downs, considered a key ingredient of a housing recovery by the Obama administration, are not included in the program. But eligible borrowers who owe far more on their loan than the value of the home could see a portion of that amount tacked onto the end of the loan with no interest charged, according to the FHFA.
The FHFA and Edward DeMarco, its acting director, have long been under fire for refusing to allow principal write-downs of Fannie Mae- and Freddie Mac-backed loans. This month, nine state attorneys general, including Illinois Attorney General Lisa Madigan, wrote a letter calling for DeMarco's ouster.
As of Dec. 31, 93,000 of the 1.35 million mortgages backed by Fannie Mae or Freddie Mac in Illinois, or 6.9 percent, were delinquent, according to a separate FHFA report released Wednesday. Of that 93,000, 60,000 were at least 90 days past due, and more than one-third of those were delinquent by one year or more.
Under the streamlined program, borrowers with first lien mortgages on primary homes, second homes and investment properties that are either owned or guaranteed by Fannie or Freddie and are at least 90 days but no more than 24 months behind on their monthly payments may be considered eligible for the\ trial modification.
Potential participants will be contacted by their loan servicers and offered a specific dollar amount to pay for three months. If they successfully complete the trial period, they will receive a permanent modification with a fixed-interest- rate loan for 40 years.
In a yearlong test of the program, the FHFA said 70 percent of the borrowers contacted by servicers started trial modifications and one-half of that group were successfully converted into permanent loan modifications. The borrowers' average monthly payment declined by 30 percent.
The FHFA noted that homeowners may be able to secure more affordable payment terms under HAMP, which reduces a borrower's monthly payments to 31 percent of gross income.
Early reaction to the new program was muted.
"While I appreciate every effort that's being made to address the ongoing foreclosure crisis, to really get at the heart of the problem,we really have to get at more sustainable solutions," said Debra Olson, executive director of the DuPage Homeownership Center. "Judging by history, this is not one of those long-term sustainable solutions. We have seen such a history of re-defaults in similar programs."
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