On Thursday a widespread principal reduction plan was announced by the Federal Housing Finance Agency. (FHFA)
FHFA announced pans that will lower mortgage balances on as many as 33,0000 homeowners that are seriously delinquent and severely underwater. Also new rules were announced to investors that are looking to buy non-performing loans from Fannie Mae and Freddie Mac.
These new rules are considered “further enhancements” to the NPL buyer requirements it announced just over a 12 months ago.
Under these new further enhancements, buyers that purchase non-performing loans from Fannie or Freddie MUST evaluate underwater borrowers for modifications that include principal and/or arrearage forgiveness.
These new rules are designed to minimize further defaults and future foreclosure losses as well as help mitigate the potential for neighborhood blight and decay This will also likely help improve loan modification success rates. WE SHALL SEE. I have my doubts. The government consistely put out new programs that sound good on paper but often time are just HYPE and political rhetoric.
“The national housing market has significantly improved in recent years, but there are still areas of the country where home values have not recovered and negative equity remains a real problem,” said FHFA Director Mel Watt. “The Principal Reduction Modification program we are announcing today, along with the changes we are making to our NPL sales guidelines, will allow an opportunity for delinquent, underwater borrowers in these areas to avoid foreclosure and save their homes.”
Moving forward, NPL buyers must review borrowers whose mark-to-market loan-to-value ratio exceeds 115% for modifications that include principal reduction and/or arrearage forgiveness.
According to the FHFA, lawyers, politicians and advocates have raised concerns that investors/NPL buyers may desire walk away from the most challenging loans in NPL pools, leaving vacant houses in neighborhoods and contributing to blight and decay. This is not allowed under the new program.
Furthermore , the FHFA new rules provide for a limit on interest rate increases in proprietary modifications after the initial modification period.
Based upon FHFA data most of NPL buyers currently offer fixed-rate proprietary modifications with zero possibility of payment increases over the life of the loan.
But, if a NPL buyer provides a proprietary modification that allows for an interest rate in the future, the period of the initial reduced interest rate must last at least five years and subsequent interest rate increases are limited to 1 percentage point per year, according to FHFAs new program.
Again this could be just rhetoric or maybe could actually work. We all have our doubts.
If you are struggling with mortgage payments; please call Attorney Matthew T. Desrochers, Esq. at (781) 279-1822.