FHFA Morgage Principal Reduction for Fannie Mae/Freddie Mac Loans
Last week, the Federal Government made an important announcement about Fannie Mae and Freddie Mac loans that has the potential to impact a significant number of people carrying mortgages. The principal reduction program from the Federal Housing Finance Agency, which has been discussed heavily in the news during the last year, is happening. If you are behind on your mortgage and facing foreclosure, it is easy to jump at the opportunity to make such an adjustment. However, it is important to understand all the details of the program and make a well-informed decision about the various consequences before doing so.
The Current Mortgage Principal Reduction Plan Is Similar to Ongoing Programs
The current program may sound like something you have heard before, but do not be too quick to dismiss it. Even if other similar sounding programs did not apply to you, this new program may. This new program resembles other mortgage reduction programs but applies to a specific set of borrowers whose needs have not been addressed by other mortgage reduction programs.
The Mortgage Principal Reduction is for a Limited Group of Mortgagees
The action will only apply to a limited group of borrowers, about 33,000 underwater mortgagees who qualify under a narrow standard stated by the FHFA. The principal reduction is a one time reduction that provides an opportunity to delinquent Fannie Mae and Freddie Mac borrowers who are more than 90 days’ delinquent. Additional circumstances that must apply to borrowers include:
- Principal of less than $250,000,
- More than 90 days’ delinquent in payments as of March 1, 2016, and
- Underwater with a market to loan ratio of at least 115%. See FHFA Fact Sheet
The Modification of the Mortgage Principal Terms that Could Benefit Many Mortgagees
The FHFA is offering mortgagees who qualify under the terms it has outlined at least some of the following:
- To have reduced interest rates down to the current market rate
- Extending loan terms, and
- Forbearances on some limited amounts owed that will eventually be forgiven.
There are other terms included in the FHFA plan that will benefit mortgagees, further adjusting mortgage principal terms to possibly benefit them.
According to the FHFA, the modification terms include capitalization of accounts in arrears, reducing the interest rate to match the current market rate, extending loan terms to 40 years, and forbearance of principal and/or arrearages up to a certain amount to be converted later to forgiveness.
Even if You Qualify, This Principal Reduction May Not Be Ideal for You
Per the FHFA Fact Sheet, loan servicers will be contacting mortgagees directly if they qualify through October 2016. In response to the invitation to participate, a mortgage need only make payments in a timely fashion consistent with the terms offered. For at least some mortgagees, however, this may not be the best option. Depending on individual circumstances, the terms offered by the FHFA may provide costs and tradeoffs that do not benefit every mortgagee.
Mortgages last for upwards of 30 years or more, and the impact to an individual or family’s financial economics can seem small in terms of monthly payments. Over time, however, these cumulative costs can add up significantly. The benefit or cost of modifying a mortgage principal can be quite significant over the life of the mortgage. Making a well informed decision with counsel that considers your interests through a small investment of time and effort can add up to more financial benefit for you and your family.
While Loan Servicers Are Contacting Mortgagees, Some May Need to Act Sooner
For mortgagees with more immediate economic needs or who prefer to act more quickly, loan servicers will also offer a streamlined version of the program that starts by July 15, 2016. This approach will enable mortgagees to begin the process of gaining approval to participate in the program earlier. For some loan recipients this may prevent them from going into foreclosure.
The FHFA Mortgage Principal Modification offers Various Options to Consider
In addition, there are various choices and tradeoffs offered within the FHFA’s Mortgage Principal Modification program. While the tradeoffs for each choice may seem obvious, the insight a professional well versed in the field can offer should not be ignored. Good advice about your legal situation offers opportunities that cannot be overestimated.
It is important to make a well informed decision when taking action that will have long lasting impact on ones’ economic wellbeing. Any decision that impacts mortgage payments may warrant significant review and consultation to ensure that careful consideration is given to benefits and costs of an individual’s situation.
We are pleased to pass on this important information to everyone in our community. One of our goals is to become a source of information for relevant issues that affect you. Contact the Coover Law Firm for insight about how to fully address real estate decisions that impact you and your future.
Providing general education about issues that matter to the community such as mortgage principal reduction is just one area where the Coover Law Firm works to keep you informed. See Other Resources on our website for information on a variety of topics such as Maryland Family Law, Real Estate, and Business Law that can be helpful to you.
Disclaimer: The information in this blog post is provided for general educational & informational purposes only. It is not intended to convey legal advice or serve as a substitute for legal counsel on any subject matter.