Yet another program to help homeowners who are delinquent on their mortgages was announced last week by Fannie Mae.
HomeSaver Advance, a part of the corporations larger HomeStay initiative, is not for everyone and sort of feels like a finger in the dike attempt to stop the tide of foreclosures, but for some borrowers, especially those who have been derailed by temporary events such as a medical emergency, it could be an excellent solution.
HomeSaver Advance is designed for the borrower who is otherwise capable of meeting his obligations and will be able to resume timely payments once the arrearage is brought current. Under the program Fannie Mae authorizes its servicers to offer an unsecured personal loan that will enable a qualified borrower to cure the payment default on a Fannie Mae owned or securitized loan. The personal loan has fewer up-front costs and can be put in place more quickly than many other options.
HomeSaver provides funds to pay past due balances of principal, interest, taxes, insurance (PITI), and up to six months (in some cases 12 months) of home owner association (HOA) fees. Escrow advances and advances for (servicers') attorney fees can also be covered. Late fees and some other costs are not eligible.
The advance requires the borrower to sign a promissory note for the funds, payable over 15 years at a fixed interest rate of 5 percent. No payments are required for the first six months nor does interest accrue during that period so the advance is amortized over 14.5 years.
There is a $600 workout fee paid to the servicer. We assume this is a cost to the borrower.
Delinquent home-owners can borrow the lesser of $15,000 or 15 percent of the original unpaid balance and the money is applied directly to the arrearage. The homeowner never receives the money in hand.
Mike Quinn, Senior Vice President for Single-Family Credit Risk Management said in a corporation press release that "HomeSaver Advance will help Fannie Mae streamline its loss mitigation efforts and offer loan servicers a new way to cope with a delinquent loan. Our research shows that most borrowers become delinquent because of a temporary life event or hardship. This loan can offer these borrowers another alternative, and help prevent a temporary setback from becoming a foreclosure."
The corporation is undertaking the program in anticipation that it will reduce the number of delinquent loans it purchases from its mortgage-backed securities trusts and the fair value losses it would suffer in connection with these purchases.
HomeSaver Advance should be available to all Fannie Mae Servicers by April 15, 2008.