Fannie/Freddie to Homeowners: Do Nothing and Help Will Arrive
Housing Wire is reporting that Federal Housing Finance Agency, the conservator of Fannie Mae and Freddie Mac, has launched a new loan modification program. The program is a major departure from HAMP and HARP (thankfully!). It puts mortgage servicers in charge of delivering relief, instead of requiring homeowners to run down, chase, and exhaust themselves contacting their mortgage company.
The basic details available so far are that the program will start this July 1 and end August 2015. It will be open to Fannie/Freddie homeowners who are 90 days or more delinquent on their mortgages. Homeowners will not have to submit proof of financial hardship or undergo extensive underwriting to be qualified for modifications.
This "Streamlined Modification Initiative" needs a better name, better branding, and at least so far, better publicity. But overall, I am very encouraged that FHFA is adopting this kind of program. It's what I call a "push program," requiring the servicers to deliver relief. We've seen at least two servicers roll out similar push programs as part of the National Mortgage Settlement. Bank of America sent letters to over 100,000 homeowners stating that if the borrower literally did nothing that their second mortgage would be forgiven and released, and the debt reported to credit bureaus paid in full. Guess what, 99% of homeowners who got this letter got the relief. Similarly, JPMorgan Chase rolled out a Settlement "refinance" program that was actually a simple, no-doc, interest rate reduction for the life of the loan. Their consumer response rate was multiples of other institutions that required full documentation for their Settlement refinance programs. Both programs are innovative and leverage the servicers' resources, while reducing the onus on everyday families.
Programs like those seen in the National Mortgage Settlement are a far cry from the dozens and dozens of forms, submitted over months, required of FHFA's HAMP program. Banks are good at selling financial products, and that is essentially the role banks are put in by asking them to design and initiate loan modifications, rather than requiring them to collect onerous paperwork and follow thousands--literally thousands--of pages of HAMP guidance.
I'll be watching how this new program goes, and I hope policymakers and advocates are too. I'm a little unsure how enthusiastic FHHA and Fannie/Freddie are about their own program based on this comment from Mr. DeMarco: "We will still encourage such borrowers to provide documentation to support other modification options that would likely result in additional borrower savings." I think it's right that more borrower savings can be useful but the biggest problem with the loan modification process for Fannie/Freddie loans that I've seen in prior years, and now in my work as California Monitor, is that Fannie/Freddie borrowers can't get a modification at all because of lost documents, dual tracking, and similar consumer harms--not that the HAMP payment reduction isn't big enough to make the loan affordable.
I encourage Fannie/Freddie homeowners in trouble on their mortgages to open their mail from their banks, even if they would be reluctant to chase a traditional, paperwork-laden modification. Mixed in with those credit card offers from the same bank that is sending you foreclosure notices might be a real opportunity to save your home.