Fannie Mae offers additional loan for borrowers in trouble
It helps those with illness or job loss, not people who simply fall behind
Bob Tedeschi, New York Times
Sunday, March 16, 2008
For a mortgage borrower verging on delinquency, a cheaper loan may be the best way to save a home. But
Fannie Mae, which holds major sway in the mortgage industry, is offering another alternative: an additional
loan.
The company, which bolsters the mortgage market by buying loans from lenders and reselling them in bulk to
investors, announced the HomeSaver Advance late last month. This program will enable borrowers to take out
an unsecured personal loan to cover missed mortgage payments quickly.
Mike Quinn, a Fannie Mae senior vice president, says the loan is best suited for those who have fallen behind
"because of a temporary life event or hardship, like loss of a job or divorce or sickness." Once they emerge from
such situations, he said, borrowers may be able to pay their monthly bills but may not be able to catch up easily
on the missed mortgage payments. Lenders typically give borrowers two years, at most, to catch up.
Under the HomeSaver Advance program, loan servicers - companies that provide billing and payment services
on a mortgage lender's behalf - can offer a 15-year loan at a 5 percent interest rate to cover delinquent
payments. Borrowers are not required to make a payment on that loan for the first six months.
The maximum loan amount is the lower of $15,000 or 15 percent of the unpaid balance and may be used to
cover all mortgage-related bills. These include lawyers' fees and escrow advances, which are payments made by
mortgage servicers to cover increases in taxes and insurance that result in shortfalls in a borrower's escrow
account.
A borrower never receives the money directly. Rather, it goes to the loan servicer, which also receives $600
from Fannie Mae for initiating the loan. A borrower pays no origination fees.
These loans will be available starting next month. To qualify, a borrower must have a loan that was sold to
Fannie Mae by the original lender, as is the case with about 23 percent of all mortgages nationwide. A borrower
may call or write the customer service department listed on the monthly mortgage bills to determine if the loan
is a Fannie Mae mortgage.
Prospective applicants must be in arrears by an amount that is equal to or greater than two full payments of the
mortgage principal, interest, taxes and insurance, and the loan must be at least 6 months old.
Beyond that, borrowers must demonstrate that they have resolved the reasons behind their delinquency and
show they can afford an additional loan payment of at least $200 per month. If borrowers have the ability to
repay their mortgage debt within nine months, they cannot qualify for the HomeSaver Advance loan.
Isis Rockwell, a counseling manager at NovaDebt, a financial counseling service in Freehold, N.J., said the
Fannie Mae program "sounds like an attractive idea." Still, Rockwell said, when borrowers manage their
finances poorly enough to put themselves in peril once, additional monthly debts may not be a wise option. "It's
Fannie Mae offers additional loan for borrowers in trouble / It helps those with illness or job loss, not p... Page 1 of 2
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generally not a good idea to borrow yourself out of debt."
Quinn of Fannie Mae said lenders would give the loans only to borrowers who have good chances of shouldering
the additional debt. "We've had a very, very high success rate in workouts we've done in the past," he said, using
industry shorthand for flexible payment plans offered by lenders to borrowers.
"Well over 60 percent of the borrowers we've done modifications for - and this is like a modification program,
just simpler - have never come back and been delinquent again," he said.
This article appeared on page K - 16 of the San Francisco Chronicle