Yet another program to help homeowners who are delinquent on their mortgages was
announced last week by Fannie Mae.
HomeSaver Advance, a part of the corporations larger HomeStay
initiative, is not for everyone and sort of feels like a finger in the dike
attempt to stop the tide of foreclosures, but for some borrowers, especially
those who have been derailed by temporary events such as a medical emergency,
it could be an excellent solution.
HomeSaver Advance is designed for the borrower who is otherwise capable of
meeting his obligations and will be able to resume timely payments once the
arrearage is brought current. Under the program Fannie Mae authorizes its servicers
to offer an unsecured personal loan that will enable a qualified borrower to
cure the payment default on a Fannie Mae owned or securitized loan. The personal
loan has fewer up-front costs and can be put in place more quickly than many
HomeSaver provides funds
to pay past due balances of principal,
interest, taxes, insurance (PITI), and up to six months (in some cases 12 months)
of home owner association (HOA) fees. Escrow advances and advances for (servicers')
attorney fees can also be covered. Late fees and some other costs are not eligible.
The advance requires the borrower to sign a promissory note for the funds,
payable over 15 years at a fixed interest rate of 5 percent. No payments are
required for the first six months nor does interest accrue during that period
so the advance is amortized over 14.5 years.
There is a $600 workout fee paid to the servicer. We assume
this is a cost to the borrower.
Delinquent home-owners can borrow the lesser of $15,000 or 15 percent of the
original unpaid balance and the money is applied directly to the arrearage.
The homeowner never receives the money in hand.
Mike Quinn, Senior Vice President for Single-Family Credit Risk Management
said in a corporation press release that "HomeSaver Advance will help
Fannie Mae streamline its loss mitigation efforts and offer loan servicers a
new way to cope with a delinquent loan. Our research shows that most borrowers
become delinquent because of a temporary life event or hardship. This loan can
offer these borrowers another alternative, and help prevent a temporary setback
from becoming a foreclosure."
The corporation is undertaking the program in anticipation that it will reduce
the number of delinquent loans it purchases from its mortgage-backed securities
trusts and the fair value losses it would suffer in connection with these purchases.
HomeSaver Advance should be available to all Fannie Mae Servicers
by April 15, 2008.