Fannie Mae Foreclosure Workout Programs
In order to qualify for any workout option from Fannie Mae, homeowners must have experienced a financial hardship. Solutions are not offered to borrowers who have not experienced such a hardship. Also, in general, the hardship must be involuntary in nature and involve a reduction in income or increase in expenses.
Fannie Mae divides workout options to avoid foreclosure into two broad categories. The first is called Special Relief Measures and are meant for homeowners experiencing a temporary financial setback. The second is called Loss Mitigation Alternatives and are designed to assist borrowers who have had a more substantial change in their personal finances.
Special Relief Measures
Special relief measures have been designed to assist the homeowner who has experienced a temporary reduction in income or unexpected increase in expenses but is expected to recover fairly quickly. There are three types of special relief measures designed to help families avoid foreclosure by getting caught up quickly or having extra time to sell their home.
In a Temporary Indulgence, borrowers are given a thirty day grace period in which they can pay back all of their missed payments at once. For homeowners who are in the process of selling a home, expecting an insurance or lawsuit settlement, or otherwise expecting a large amount of money in a short period of time, this option may be appropriate. The servicer can agree to this plan without obtaining permission from Fannie Mae.
A Repayment Plan allows homeonwers to begin making their regular payment again, while including a portion of their passed due payments each month. Over time, the arrears are paid back and the homeowners end up back on track with their mortgage. The servicing company has to approve any repayment plan the owners offer, although it does not have to seek Fannie Mae’s approval for such plans.
A Special Forbearance involves a written agreement between the borrower and servicing company to reduce or suspend payments for a period of time. Once the forbearance period has ended, the homeowners must begin making regular payments again, and include a portion of the arrears, just as in a repayment plan. For repayment plans that do not exceed eighteen months, the servicing company does not need Fannie Mae’s approval. For plans that last longer than this, however, Fannie Mae must approve.
Loss Mitigation Alternatives
When a short term plan is unlikely to help the homeowners stop foreclosure or allow them to sell quickly, a loss mitigation solution should be considered. All mortgages that Fannie Mae holds can be eligible for these alternatives to foreclosure, including ones it holds itself or loans that are involved in securitizations. All of the below-listed solutions must be approved by the servicer and Fannie Mae.
While loan modification possibilities are nearly endless, Fannie Mae typically only considers ones that reduce the interest rate, amortize the missed payments throughout the life of the loan, change the mortgage from adjustable to fixed rate interest, or extend the term of the loan. In addition, homeowners are required to make a cash payment up front to begin the plan. Servicing companies can charge the borrowers up to $500 to cover costs, as well.
Mortgage assumptions allows another party to take over the mortgage from the original borrower and also take title to the property. The requirements for a valid assumption under Fannie Mae guidelines are that the property’s value is equal to or greater than the amount owed on the loan, plus interest, plus costs to sell. If the property value is less than the amount required, the party assuming the mortgage may be able to make a cash contribution to qualify. Assumption is not allowed if there are other mortgages on the property, unless these are paid off.
A preforeclosure sale is essentially a short sale, in which homeowners are allowed to sell their home for its fair market value, regardless of how much they still owe on the mortgage. The servicer and Fannie Mae will take a hit, but foreclosure will be avoided. All other workout options must be considered first, though, before the preforeclosure sale alternative is open to borrowers. Fannie Mae also pays the mortgage servicing company $1,000 for the preforeclosure sale.
Deed in Lieu of Foreclosure
Under a Fannie Mae deed in lieu of foreclosure, the borrowers voluntarily transfer title over to the lender. Once a property has been on the market for at least three months under a preforeclosure sale option, the homeowners may offer a deed in lieu. Other reasons Fannie Mae may accept this solution is if there are legal issues surrounding the foreclosure or the deed in lieu will allow Fannie Mae to get title more quickly than foreclosure. The property must not have anyone living in it and there can be no junior liens at the time of the deed in lieu.
For a free professional evaluation and foreclosure ebook, simply fill out the evaluation form.