The following text is a summary of a statement issued on 11/11/08 by the FHF Director, James B. Lockhart.
"The Federal Housing Finance Agency (FHFA), which regulates Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (FHLB), strongly supports a new initiative that assists "at risk" borrowers who could lose their homes to foreclosure. This initiative is creating a streamlined, simplified loan modification program to get struggling homeowners into mortgages that they can afford. This streamlined modification program, with uniform eligibility requirements, will be supported by a consistent, efficianet process approved by key industry participants. This program resulted from a unified effort among the various government agencies, Hope Now and its 27 servicer partners, the Department of the Treasury, the Federal Housing Administration (FHA) and FHFA.
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 delinquint borrower should contact his/her servicer and provide the requested income information. The program creates a a fast-track method of getting troubled borrowers to an affordable monthly payment, where "affordable" is defined as no more than 38% of the household's gross monthly income. This affordable payment will be achieved through a mix of reducing the mortgage interest rate, extending the life of the loan, or even deferring payment on part of the principal. Servicers will have flexibility in the mix used to get there, but the goal is to create a more affordable payment.
The key to success is the borrower's ongoing cooperation and communication with the servicer. Borrowers shouldn't fear working with servicers. They have dedicated personnel who are experienced in working with homeownerrs who are struggling with finances, but who are eager to keep their homes.
The streamlined modification program complements existing loss mitigation programs. We expect that it could significantly increase the number of modification s completed. Borrowers who participate will be strongly encouraged to seek financial counseling though HUD-approved agencies, particularly if the default is a result of being overextended or due to financial mismanagement.
Fannie Mae and Freddie Mac will soon issue specific guidance to their servicers implementing this program, requiring implementation by December 15, 2008. To encourage participation, servicers will receive a fixed payment of $800 for each loan modified through this program.
Troubled borrowers eligible for this program have already experienced significant erosion in their credit scores, making them unlikely to obtain mortgage credit through typical means. Many also lack equity in their homes. This streamlined program is meant to reach as many of these borrowers as possible to give them a chance to save their homes and being restoring their credit. The borrowers' ultimate obligation to repay his/her current mortgage does not change...."
As a realtor who focuses on short sales and distressed homeowners, I applaud this initiative. As I have written in the past, this is not merely a financial crisis, it is a human crisis. These are real people facing the very real likelihood of losing their homes. While this may hinder my abilities to do short sales, I am optimistic that this approach will greatly reduce the number of distress sales, and have a positive impact on our real estate markets.
I would love to hear from fellow realtors, and get a feel for all your thoughts on this tremendously important issue.
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