Foreclosure Help is On the Way

Fannie Mae, Freddie Mac, Bank of America, J.P. Morgan Chase, HSBC and CitiMortgage are a few of the mortgage industry giants working to provide relief to homeowners who are behind on their mortgage and have very little, if any, equity in their homes through a streamlined mortgage modification program.  Many of the large news stations have been sharing details of the plan, but I figured I would provide some details here, as well.

The plan for most of these mortgage giants is to provide relief starting in December 15 and the following criteria must be met in order to qualify:

• 90 days or more past due on mortgage payments
• Owe 90% or more on their home
• Occupy the property as their primary residence
• Additional details to be released by Fannie Mae and Freddie Mac

If a homeowner meets this criteria, they may be eligible to modify their current mortgage.  The idea is to create a payment that can be made by the homeowner through a reduced interest rate, longer term or even defer payments.  The plan would help to modify their current mortgage to a housing payment no more than 38% of the gross monthly income of the borrowers.

This plan may help some homeowners but my thoughts are mixed.  This morning on Good Morning America I heard a homeowner who is, as GMA put it “under water”, meaning they owe more than the home is worth.  The homeowner stated that they were told by someone to stop making payments to allow themselves to be eligible for special rescue plans, such as the one describe above.  My fear is that the rescue plan will end up helping people it was not meant to help.  This plan is for those that are unable to make, and currently not making, their mortgage payments.  It is not meant for those who want to reduce their payment, because they can, and therefore people stop making payments to get a lower rate and/or payment.  I guess we will see how it plays out.

So why would the mortgage industry want to do such a plan?  To be nice to those who are in over their head and facing foreclosure?  Maybe, but I think it is all about business.  If the mortgage companies can avoid the foreclosure on a home, they avoid unnecessary court, home maintenance and home sale costs which would save these companies millions.  This plan may also create some hope in homeowners to turn the market and increase demand within the housing market, therefore increasing prices and stimulating the economy, which is something I think everyone agrees we need.

Lending a hand,

Scott Wynn