New Foreclosure Prevention Program

March 22, 2010

When the Obama administration announced that it would try to prevent foreclosures by giving lenders the ability to modify loans, it was predicted to help support real estate values by keeping homeowners in their homes. It was said that as many as 3 million households would be eligible for loan modification. Fannie Mae extended invitations to 1.354 million borrowers to apply for modification. The program has been criticized though because only 168,000 loans have been modified up to this point. Seattle mortgages eligible for modification would likely number in the 150,000 range.

In response to the lack of completed modifications, Fannie has introduced a new program called the Alternative Modification program. This program is eligible for those that have make application for a loan modification prior to March 1, 2010 and were accepted in to the trial program. Many borrowers were accepted in to the trial period but were later denied a permanent modification. Many people were denied permanent modification because they did not provide the proper documentation, or because of eligibility restrictions. Loan servicers are now required to offer Alternative Modification to those who were in the denied permanent modification before foreclosing on the borrower.

To be eligible for Alt Modification the following must exist:

1. The loan must have been considered for Home Affordable Modification Program
2. The HAMP trial period must have been started before March 1, 2010
3. The loan must be on a 1 to 4 unit owner occupied property
4. The borrower must have made all payments arranged under the HAMP trial offer. Any subsequent payments due during the time the servicer considered making the modifications permanent need to be made.
5. Any payments due subsequent to the trial period must be made before the modification can be made permanent.

Loan servicers are given an action plan and timing schedule to contact borrowers eligible. If they do not comply they will loose some incentives from Fannie.

Fannie is also working with mortgage insurance companies to cooperate with the new program.

Servicers may not charge the borrower for out of pocket fees to close the loan change. The servicer must pay for fees and are refunded by Fannie.