FNMA Loan Modification Hypocrisy
For all the talk of “we want to keep people in homes” and “we’re expanding the American Dream,” for all the big talk of the bozos in Congress who provide “oversight” of the GSE’s, numbers recently reported indicate that Fannie Mae is doing FEWER loan modifications, according to Housing Wire.
Why is that?
Well, they unveiled this “innovative” program called the Home Saver Advance (HSA). Instead of doing an actual modification (including offering payment relief/rate reduction), they provide an advance to the homeowner, bringing the mortgage current. The homeowner then resumes normal monthly payments.
Six months later, the homeowner must begin paying the loan back in monthly installments at 5% on a 15-year term.
So, why is this bad?
First of all, servicers seem to be jamming anyone and everyone into this program, whether it makes sense or not, seemingly without thinking at all.
Second, the old standards regarding acceptable surplus limits have been tossed out the window on this program. I’m seeing new clients who were approved for HSA’s with surpluses as low as $177/month! I’ve never seen this before, so I e-mailed my contact over at Fannie Mae to confirm this madness…. is this really what passses for loss mitigation these days?
Her response:
Yes. $200 surplus is the magic #. The formula is net income minus expenses (including the HSA payment) = residual income. We want that residual income to be $200 surplus.
Does it take a brain surgeon to recognize that a $177 monthly surplus is a prescription for disaster? With this kind of thinking, is it any wonder why the recidivism rate for loan modifications is so high?
What’s a family of four going to do when the car needs repairs, the furnace goes out, and the kids need new shoes… all in the same month?
Once again, they’ll be choosing amongst creditors, utility bills, car payments, and… the mortgage payment.
On the other hand, maybe the homeowners could simply ignore the HSA payments. It’s unclear how aggressive the collection activity will be.
Here’s my bold prediction:
the FNMA Homesaver Advance program (HSA) will have a higher failure rate than loan modifications (58% default rate within 8 months).
I’d been trying to figure out where or how they came up with this hare-brained scheme. I had been thinking that maybe there’s some insider knowledge about further federal bailouts- for the investors. So maybe they were just kicking the can down the road until a real solution would arrive.
Here’s the real explanation. According to Housing Wire, this program allows Fannie Mae to avoid having to buy the loan out of the pool in order to modify it, saving them a substantial amount of cash… in the short term, of course.
I believe they have to pay face value for the note, but I had thought that they could eventually place it back into the pool, provided it performed for a period of time. Of course, with the wonderful job they’re doing with their loan modification failure rate, I can see another important reason as to why they’d rather not modify the loans at all.
In case anyone important is listening (I know you’re not), here’s something to consider: you can only “fool with” a homeowner for so long. If you’re going to force them into plans that are not designed with long-term sustainability in mind, they eventually reach the point where they say, “I’ve had it- I’m out of here.”
So, if their intention is to focus on short-term thinking, talking about loan modifications and keeping people in their homes while not delivering, then they’ll have themselves to blame for this problem… because they’re making things worse.
The actions don’t match the rhetoric.
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Tags: Fannie Mae, FNMA, Home Saver Advance