Dean Graziosi’s Real Estate Investment Academy

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On June 24^th, Fannie Mae released a stern message with strong ramifications for borrowers who default on Fannie Mae mortgages. The announcement marks a shift from what has previously been a loose laissez-faire policy to a new, comprehensive collection policy. The new policy is strict and is the direct result of the willingness of homeowners to walk away from their mortgage obligations.

With many unemployed homeowners and with many mortgages that exceed appraised values of the homes, a high percentage of Americans are intentionally defaulting on their mortgages and forcing lenders to foreclose. This practice has cost Fannie Mae billions of dollars.

In the announcement Fannie Mae stated, “Defaulting borrowers who walk-away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure.”

“Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments.”

The bottom line is that Fannie Mae will now take action to try to collect money lost as a result of walk-away borrowers. The seven-year restriction is severe as the majority of housing loans in the U.S. are backed by Fannie Mae. Previously, homeowners who defaulted could apply for Fannie Mae backed mortgages within three years. Those days are now gone.

The moves by the country’s largest insurer of mortgages is designed to bring underwater homeowners together with lenders to either arrive at loan modifications or in the alternative short sales. Foreclosure is the least desired alternative.

To help the modification process, The Obama Administration has committed billions of dollars in loan reductions and incentive programs for both homeowners and lenders. Originally, lenders were not supportive of modifications because they did not want to accept the losses. What these lenders soon discovered is that the cost of foreclosures far outweighed the relatively minor losses incurred by modifications.

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In November, the number of troubled homeowners in trial modification programs rose to 697,026 from the 650,994 October level. Amazingly, only 31,382 homeowners have been converted to long-term loan modifications. At the same time, the number of failed trial programs now stands at 30,650.

Failure occur for three primary reasons:

· Failure to sustain timely payments during the trial period

· Failure to submit all necessary paperwork

· Failure to qualify as having insufficient income

These tendencies underscore an alarming fact that homeowners who are underwater are unwilling to continue to pay for properties whose debt surpasses the value. There is a strong tendency to walk away and begin to rent in another area. This drives home prices lower.

Congress is pressuring the Administration to help more homeowners. Phyllis Caldwell of Treasury’s Homeownership Preservation Office explained, “Our focus now is on working with servicers, borrowers and organizations to get as many of those eligible homeowners as possible into permanent modifications.”

The administration has been leaning on lenders to engage troubled homeowners, but the country’s biggest mortgage lenders like Bank of America and Citigroup have chosen to ramp up their foreclosure efforts. Treasury is now launching an all out campaign to intervene. Utilizing forceful oversight of loan services’ modification programs, the government expects modifications to significantly increase in the upcoming months.

Treasury is even sending out advisers to assist borrowers with completing paperwork. The current long-term conversion arte is just 4%. The Treasury would like to see 40% increases in the next tow or three months. If the goal is accomplished, there should be a very positive effect on housing prices.

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The Obama administration brought about the loan modification program in order to help sinking homeowners. It’s designed to help homeowners come back to the normal repayment schedule with a limited period of help. This was an attempt to stop foreclosures and short sales for most part.

The program involves modifying the terms of the payment of the mortgage in such a way that it becomes more affordable. These programs act by extending the term of the loan, by reducing the rate of interest charged, changes in the type of loan and reduction in the outstanding balance. The period of help will end on January 31st 2012.

Individuals who wish to refinance, and are not being offered any new option by the banks, should definitely look at the loan modification program. Most of the time, banks or lenders aren’t keen on refinancing a delinquent or defaulting account. There are simple means by which you can prove your eligibility for this program and these criteria include:

·    Documented evidence of hardship or change in financial situation,
·    Delinquency for more than 90 days,
·    The premise should be the primary residence of the applicant,
·    Shouldn’t have purposely defaulted to get into the loan modification program

Some of the loan modification programs available are:
·    White House – Treasury Loan Modification program
·    IndyMac Federal Bank Loan Modification Program
·    Federal Housing Finance Agency Loan Modification Program
·    Other private programs are from
o    Citigroup
o    J P Morgan Chase
o    Bank of America

The advantages of this program are profound:
·    It avoids foreclosure and short sale
·    Reduces the interest rates therefore the monthly commitment reduces
·    It is a private arrangement between the lender and borrower
·    Lower impact on the credit score than foreclosure of the borrower
·    Borrower is able to stay in the house while availing the program

The disadvantages include:
·    Getting the proof of difficult financials may be quite heady
·    Only those with a mortgage amounting to 105 percent or less of home value would get the assistance.
·    Hits the credit score or FICO score of the individual
·    Some might deliberately miss payments
·    Worthy borrowers are not getting the assistance

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