Traditionally, the help available to a distressed home owner from the government and Fannie Mae and Freddie Mac was limited to information and advice, such as that under the Hope Now Program. Hope Now is a free foreclosure prevention service provided by loan servicers and U.S. Housing and Urban Development (“HUD”) approved counseling agencies. It encourages borrowers to talk to their lender first, and who to call when a lender won’t work with them.
Tips for avoiding foreclosure and foreclosure scams are available, and where to find local renting resources, rental assistance, and relocation resources. It provides links to state and local foreclosure resources, and offers state by state housing counselors. http://www.hopenow.com/. Additional information on the subject is offered in HUD’s Guide to Avoiding foreclosure, available at http://www.hud.gov/foreclosure/index.cfm.
Clearly the scope of the current crisis required that the government provide more than just information and advice. As a result, Fannie Mae introduced the HomeSaver Advance program in the first quarter of 2008. It grants qualified borrowers an unsecured loan up to the amount of the delinquent payments to bring the mortgage account current, up to the lesser of $15,000 or 15% of the original unpaid principal balance. The loan proceeds can be applied to delinquent payments, escrow advances, and advances, and foreclosure and bankruptcy fees and costs that would otherwise be reimbursed by Fannie Mae. In August, 7,914 mortgages were brought current with this program. A fact sheet on HomeSaver Advance can be found at www.efanniemae.com/sf/servicing/homesaveradvance.jsp.
The adjustable rate mortgage (“ARM”) problem requires a different approach – the refinancing and elimination of the loan itself. FHASecure allows current and delinquent homeowners to refinance their FHA loan. If the borrower is delinquent on the mortgage, the default must have been due to the payment shock of an interest rate reset or, in the case of an ARM, the “recasting” of the mortgage to fully amortizing.
The amount that can be refinanced depends on the value of the property and how much is owed and if the lender, or another eligible source, is willing to take back a second mortgage to help bridge the gap between what is owed and the home’s value. Disadvantages of FHASecure are that it has very limited applicability to borrowers in foreclosure, and its inability to deliver refinance assistance in the volume needed – there were only approximately 4,500 loan modifications made as of late summer. Information on the program is available at http://portal.hud.gov/.
Two other programs which extend loan modification and alternate loan benefits to homeowners will be discussed in the next segment of this blog. If you have any questions thus far or if you are a distressed borrower with a home to sell, you can reach me at firstname.lastname@example.org.