Loan Modification- available sooner for homeowners, avoid foreclosure

Real Estate Agent with Keller Williams Realty 6502364184

Publication: The Columbus Dispatch;Date: Dec 21, 2008;Section: Home & Garden;Page: I4

THE NATION'S HOUSING- Homeowners can modify loans sooner

Here's some good news for homeowners facing tough financial times: You no longer have to miss two to three months of payments before your mortgage company can modify your loan terms.

Starting immediately, Fannie Mae will allow borrowers who face imminent financial difficulties to request early loan alterations, even if they've never been late.

Fannie's policy change has the potential to help thousands of people who are losing jobs or facing layoffs as the recession crunches onward.

Most lenders and loan servicers traditionally have declined to intervene in mortgage problems until borrowers are 60 to 90 days late.

At that point, loss-mitigation staffs can try to work out solutions through rescheduling of back payments, forbearance, extending the loan term and other techniques.

Under Fannie Mae's revised approach, servicers of the company's loans will be required to inform borrowers that if they are reasonably certain that changes in their income will cause them to miss mortgage payments, they might qualify for a loan modification in advance.

Borrowers who qualify will enter into a trial period - usually four months - of reduced payments. If they make payments on time during the trial, the modified mortgage terms could be made permanent.

For example, say your spouse loses a part-time source of income, and suddenly you're short $400 a month needed to make your $2,000 mortgage payment. In the past, if you called your loan servicer, you'd likely be told that longstanding rules prohibit any help to you until you have become delinquent by several months.

But by that time, you might be thousands of dollars in the hole, racking up big late-payment penalties.

Under the new plan, by contrast, Fannie's servicers can now tell you upfront: We'll try lowering your monthly payments to accommodate the $400 in missing income. If you're current on the lowered payments after a four-month trial and your income situation hasn't rebounded, we'll make the change permanent.

Officials said servicers will examine the facts in each case, check income, credit reports and other documentation to ensure that borrowers aren't faking income shortages just to get a lower payment.

Fannie's new loan-modification program puts the company in sync with a number of other large mortgage institutions that have begun reaching out to borrowers facing economic strains before they end up in serious delinquency or foreclosure.

For instance, JPMorgan Chase chairman Jamie Dimon says he expects his company to work with as many as 400,000 customers who might be in danger of missing payments. Bank of America has announced a similar effort.

Freddie Mac has permitted its servicers to negotiate early modifications in some circumstances for years, according to spokesman Brad German, although the company has not aggressively publicized it to borrowers.

With the addition of Fannie Mae, most major players in the mortgage market now say they offer some form of early intervention for consumers heading for defaults. But there's a big unknown here: If your servicer modifies the terms of your loan, will you stay out of trouble? Or might you fall behind again?

The jury is still out. On the one hand, some recent federal statistics show that 53 percent of modified loans end up in re-defaults within six months. Modification advocates such as Sheila Bair, chairwoman of the FDIC, argue that changes to loan terms that go deep enough to meaningfully deal with borrowers' ongoing financial problems succeed at far higher rates.

One of the country's largest servicers of delinquent subprime mortgages, Ocwen Financial of West Palm Beach, Fla., agrees. Less than one-quarter of its modifications - often involving significant cuts in interest rates and payments and sometimes even reductions in principal debt - end up re-defaulting, said Paul Koches, the company's executive vice president.

"If you do it right," he says, "modifications really work."

Kenneth R. Harney covers housing issues on Capitol Hill for the Washington Post Writers Group. You can write to him at P.O. Box 15281, Chevy Chase, Md. 20815 or send e-mail.

Ray Spitler does loan modifications, and specializes in short sales in the Midland, Bay, and Saginaw County Michigan areas. Contact Ray at (989)607-6252 or visit