Some troubled homeowners on the verge of losing their property are starting to feel extra thankful this holiday season. Lending giants Freddie Mac and Fannie Mae, which were seized by the government in September, announced last Thursday that they will contact an estimated 16,000 borrowers who are facing foreclosure or evictions between November 26, 2008 and Jan. 9, 2009. Those proceedings will be delayed and the homeowners will have a chance to work with mortgage servicers to modify their home loans into affordable payments.
The streamlined modification program is scheduled to launch December 15. Foreclosure attorneys and loan servicers will be instructed to use the additional time to reach out to borrowers who have defaulted on their loans and continue to pursue workout options. The initiative applies to loans owned or securitized by Fannie and Freddie.
Freddie Mac says it is on track to help three out of five troubled borrowers avoid foreclosure this year. The suspension, "builds on this momentum and provides a new measure of certainty to many of these families during the holidays," Freddie Mac CEO David Moffett said in a statement.
Risky borrowers targeted
The program is aimed at the highest risk borrower who has missed three payments or more, owns and occupies the primary residence, and has not filed for bankruptcy. The program creates a fast-track method for getting troubled borrowers into an affordable monthly payment through a mix of reducing the mortgage interest rate, extending the life of the loan or even deferring payments on part of the principal. Servicers have flexibility in the approach, but the objective is to create a more affordable payment for borrowers at risk of foreclosure.
While loans defaults across the country are growing faster than most banks can keep up with, other lenders, including JPMorgan, Bank of America and Citigroup, have recently become more aggressive about modifications to mortgage agreements. Officials from the Treasury Department and the Federal Deposit Insurance Corp. (FDIC) are also working on a new proposal that could help some 3 million homeowners who are behind on their mortgage payments and help keep them in their home. Sheila Bair, the chairwoman of the FDIC, has been the leading proponent of the plan and first discussed the idea publicly in late October.
The reality of loan modifications
The issue of loan modifications is a hot topic out there in the blogosphere. There are wide ranging opinions from complete outrage for what is viewed as rewarding bad behavior to jubilation that something is finally being done to help Main Street Americans. It's hard to say what the right solution is in these dire times. But one thing is for sure, it has now become hip to announce billion dollar loan modification efforts without the right muscle to back up the foreclosure fighting claims. The government's HOPE NOW initiative launched earlier in the year has had little impact on reducing foreclosure rates. We'll just have to wait and see if these new modification programs are more than just lip service.
Read more about Fannie and Freddie's streamlined modification program at FannieMae.com.
Can the private sector fix the foreclosure crisis through loan modification? Or, does the federal government need to put forth a comprehensive plan?
Got hot local housing tips or a story you want to share? Contact Amy Le at openingdoorsblog@homescape.com
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