What’s in a name? HomeSaver Advance, a loss mitigation program offered by Fannie Mae, sounds like a pretty good deal.
A struggling homeowner can get an unsecured personal loan if they fall behind on their monthly mortgage payments.
While the homeowner won’t receive any cash in hand, they can use the proceeds to pay off delinquent mortgage payments, interest, taxes, insurance, and even foreclosure-related fees.
And the loan comes at a low, low five percent fixed-rate, with no payments or interest accrued for the first six months.
So why is it that performance on the February through April offerings of such loans displayed a re-default rate of nearly 70 percent?
In its report to Congress, the FHFA said it “calls into question the program’s assumption that borrowers have the capacity to make payments going forward,” and makes clear the fact that more meaningful measures are necessary to tackle rising defaults.
Back in October, the Neighborhood Assistance Corp. of America (NACA) slammed Fannie Mae for utilizing HomeSaver Advance as its primary loss mitigation tool, while failing to address affordability concerns.
And as recently as the third quarter of last year, the loans accounted for a whopping 45 percent of loss mitigation activity, falsely relatively weak inflating loan workout numbers.
It’s pretty obvious that a combination of measures must be taken to get struggling homeowners back on track, such as mortgage rate reductions and principal balance reductions with the borrower’s income in mind.
Otherwise it’s all just a big waste of time, and money.
Remember, only 42 percent of loans modified in 2008 resulted in reduced monthly payments for borrowers, while 32 percent actually increased payments.