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.

 

Comments

[IC_deLight]

...but Fannie/Freddie hide behind servicers that claim to be the holders/owners. So how does this plan work when, for example, GMAC claims to be owner/holder while Fannie/Freddie are secretly the owner/holder...and how did Fannie Mae get back all those loans that GMAC was claiming it owned at the time it filed bankruptcy? Seems that GMAC/FNMA were either committing fraud upon the bankruptcy court or state court whenever GMAC did not claim ownership in bankruptcy court for the same notes/security instruments that it was claiming ownership of in state court.

[Mike Dillon]

"It puts mortgage servicers in charge of delivering relief, instead of requiring homeowners to run down, chase, and exhaust themselves contacting their mortgage company."

Where's the "facepalm" emoticon? How many times has something been devised to supposedly "fix" this "crisis" put servicers in charge only to watch it fail miserably as a direct result? The heart of the problems has historically BEEN the servicers. How readily and eagerly everyone has been to ignore USA/Curry v. Fairbanks, FTC v. EMC/Bear, FTC v. CHLS/BACHLS, etc...

My apologies, Prof. Porter, I'll have to try reading this piece later and intentionally skip the first graph. Otherwise, I'll never be able to get past that statement.

It's a similar reaction I had to the recent revelation that NH Bankruptcy Courts have apparently been habitually refusing to adjudicate adversary proceedings, opting instead to bounce them down to state Superior Court. In turn, the cases are then removed to federal court by the note holders/servicers.

[russ]

Great, more programs for those not paying their mortgages, yet I have stacks of homeowners files on my desks who have been diligently paying their mortgages, still gainfully employed, still have excellent credit and basically doing everything right and they still haven't been able to refinance.

HARP is a joke. Millions of borrowers who had Alt-A loans that aren't HARP eligible.

Instead of playing games, govt should have just lent money directly to homeowner's at like 1% and put everyone in 10 or 15 year loan. We'd be half way out of this mess as the negative equity issue which the main crux of the problems would have been resolved by now. Banks get their principal back and homeowner's could sell at lower prices since they wouldn't necessarily need to write a huge check at closing or do a short sale and at least have some hope of actually paying off the mortgage.

[jim]

yep

[Richard Davet]

why was my comment removed?

[KarenM]

Prof, Porter,

Forgive me if my understanding is limited enough to make my observations incorrect. But I am under the impression that the servicers claim to be the note holders of notes that are held in trusts and bundled into mbs pools. Most of which have already been written off to their credit investors. So they are collecting on loans in which the true funding investors have already been paid, either with insurance or tax write offs.

These servicers make more money off of delinquent accounts than off than those that are performing. Further these same servicers are overcharging for fees and escrow amounts. Then when a borrow cries foul on accounting the borrower has no recourse. The servicer then pushes borrowers into modification programs - makes them claim hardship so that when the borrower starts questioning accounting or escrows the servicer can easily foreclose stating that the borrow did not have the income to support.

My concern is that what you report as an innovative program is really another way to cover up the truth. The servicers have no legal right to collect on most of this paper. The credit investor has already lost. Its too bad the link between the true investor and true borrower is gone. Please feel free to contact me with your comments. I am a UCI alum.

[chris m]

what good do any reforms do when the culprits charged with this proactive outreach are simultaneously too big to jail and well aware of their own immunity?

the livestock wandered away from the open barn door long ago, along with with any and all credibility for our judicial system.

quaint notions of private property are now but an aroma within that abandoned stall.

[chicagogal]

Can't speak for Fannie, but I was told by both GMAC and Freddie that no servicer has to actually follow the servicing guidelines that Freddie supposedly imposes on them because their contracts say different! So instead of doing the HAFA deed-in-lieu for which I qualified per Freddie's guidelines, I was forced to give the house up in foreclosure court.

Now FHFA wants to go back to the no doc mods? How well did that work the last time?

[Simon Campbell]

Heh, why was my comment removed too?

[Ken Johnson]

Hopefully Porter will follow her mentor Warren and not stand for fraudclosures and the rape of the country.

[usedkarguy]

i, too, am left in incredulity after the good professor acknowledges the problem from the start: servicer control. The charades continue.....

[John Ruiz]

Let's see how this new loan modification program turns out. Hopefully, it will help those struggling with their current mortgages.

In my opinion HARP was a good initiation as well.