In an attempt to help struggling American homeowners, the U.S. Department of Treasury, HUD, the Federal Housing Finance Agency, Freddie Mac, Fannie Mae and the Hope Now Alliance recently outlined a plan to avoid “preventable” foreclosures. Households that have missed three or more mortgage payments may receive assistance through refinanced mortgages with lower interest rates and longer payment periods of up to 40 years. The plan was announced as figures came out showing home foreclosures have increased by almost 150% over the past two years. This action plan is aimed at helping millions of homeowners facing foreclosure over the next few years.
The new proposal promises to implement a framework characterized by uniform eligibility requirements, easier processing, and using less documentation than other loan modifications processes. The simplified loan modification framework will not onrwly help those homeowners who receive a streamlined modification, it will also further address servicer capacity concerns by freeing up resources, helping ensure that borrowers do not fall through the cracks because servicers aren’t able to get to them. Here some more details:
The current effort 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. The program creates a fast-track method of getting troubled borrowers to an affordable monthly payment where “affordable” is defined as a first mortgage payment, including homeowner association dues, of no more than 38 percent of the household’s monthly gross 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.
If the servicer is unable to create an affordable payment with this streamlined program, it will further evaluate the borrower’s situation through a customized process. 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 borrowers 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 modifications completed. Borrowers who participate will be strongly encouraged to seek financial counseling through HUD-approved agencies – particularly, if the default is a result of being overextended or due to financial mismanagement.
Finally, some good long term planning by government and industry to get struggling homeowners into mortgages that they can afford to pay. Home owners who have been keeping up with payments may complain about the special treatment for the “at-risk” group, but they need to realize that helping folks stay in their homes and continue repaying their modified mortgages is critical to restoring the health of the financial system and economy. At it’s most basic the credit crisis was caused by actual and perceived default rates of so called distressed/sub-prime mortgages and the sooner we can bring some stability to home owners and their mortgages, the sooner we will be back on the road to recovery.