Part 1 of this blog series detailed some of the programs and resources available to distressed home owners from the government and Fannie Mae and Freddie Mac. Those programs were insufficient to assist the increasing volume of struggling homeowners. This segment deals with programs which hopefully will prove more effective.

Fannie Mae introduced the Streamlined Modification Program (SMP) in November, 2008. This program designed to help borrowers and loan servicers address potential mortgage problems and prevent unnecessary home foreclosures among the more than 18 million single-family loans owned or guaranteed by Fannie Mae. Scheduled to launch December 15, 2008, SMP targets borrowers who have missed three full payments and meet certain other criteria.

On December 8, Fannie Mae announced that it is providing new servicer flexibility to help borrowers avoid foreclosure. These changes were made to allow more struggling families to use the program and keep their homes. Designed to build on and complement SMP, these steps are meant to reach borrowers earlier with foreclosure prevention options.

The changes include specific direction to servicers to provide foreclosure prevention assistance as soon as a borrower demonstrates the need for help, even if a borrower is current but default is reasonably foreseeable. This “Early Workout” program allowing servicers, in one step, to pre-negotiate a loan modification that becomes effective and permanent only after an initial trial period. The new guidelines will also double the maximum forbearance and repayment plan periods for most loans to borrowers in need of loan workouts.

In connection with SMP, Fannie Mae has ordered a halt to all foreclosure sales on occupied single-family properties scheduled to occur from November 26, 2008 through January 9, 2009. This temporary halt also applies to eviction lockouts of occupied single-family properties. Information on the program and the moratorium on foreclosures can be accessed at http://www.fanniemae.com/home/index.jsp.

HUD’s offers the HOPE for Homeowners program (H4H), and it recently announced that the Board of Directors has approved changes to the program to help more distressed borrowers refinance into affordable, government-back mortgages. Under the program, borrowers having difficulty paying their mortgages will be eligible to refinance into FHA-insured mortgages they can afford. The changes will reduce the program costs for consumers and lenders alike, while also expanding eligibility by driving down the borrower’s monthly mortgage payments.

For borrowers who refinance under H4H, lenders will be required to “write down” the size of the mortgage to a maximum of 90 percent of the homes new appraised value. Hopefully such a reduction in principal will allow lenders to avoid a costly foreclosure, while helping borrowers stay in their homes

H4H will only offer 30-year fixed rate mortgages – so the borrower’s last payment will be the same as the first payment. Further, this program will maintain FHA’s long-standing requirement that new loans be based on a family’s long-term ability to repay the mortgage. Only owner-occupants are eligible for FHA-insured mortgages, and any existing second position or subordinate lenders must agree to release their outstanding mortgage liens.

Other limitations apply. Borrowers must also meet the following criteria: Their mortgage must have originated on or before January 1, 2008; they cannot afford their current loan; they must have made a minimum of six full payments on their existing first mortgage and did not intentionally miss mortgage payments; they do not own a second home; their mortgage debt-to-income must be at least 31 percent; they did not knowingly or willfully provide false information to obtain the existing mortgage; they have not been convicted of fraud in the last 10 years; they must fully document income and employment; and they must agree to share both the equity created at the beginning of their new H4H mortgage and any future appreciation in the value of their home. Additional discussion can be found at http://www.hud.gov/hopeforhomeowners/index.cfm.

Email me at mark@simplysoldaz.com if you have questions or want to sell your home and need any pre-foreclosure or foreclosure help.