Fannie and Freddie’s New Deal

The Federal Housing Finance Committee in a news release this morning, announced that Fannie Mae, Freddie Mac and the Federal Home Loan Banks will be assisting "at risk" borrowers with loan modifications.

"The program targets the highest risk borrower who has missed three payments or more, owns and occupies the property as a primary residence, and has not filed for bankruptcy.  To be considered for the program, a seriously delinquent borrower should contact his or her servicer and provide the requested income information."

Qualified home owners may have their mortgage payment (including any home owners association dues) modified to be no more than 38% of their gross monthly household income through "a mix of reducing the mortgage interest rate, extending the life of the loan or even deferring payment on part of the principal…the goal is to create a more affordable payment."

Borrowers will need to be able to certify that they have experienced a hardship or change in financial circumstances–this is not a "skip three mortgage payments and get rescued" deal.  According to what I’m reading in the news release, mortgage balances are not forgiven, they will be deferred (which I prefer).

If you are a home owner in trouble, you must start with contacting your mortgage servicer (where you make your mortgage payments).  This is a "new deal" so even if you’ve recently tried negotiating, you should try again.   Not everyone in distress will qualify for this program…but you won’t know until you try.

According to FHFA, Fannie and Freddie own (or guarantee) about 58% of all single family mortgages of which 20% are seriously delinquent.  Private label securities (non-prime) represent less than 20% of single family mortgages with 60% of those being seriously delinquent.

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