Friday, May 22, 2009

HomeSaver not Saving Homes

Loan modifications only work if people can pay the mortgages. Earlier this week we profiled a list of mortgage modification types that had one common requirement - the home owner needed an job/income/employment. Without that there is virtually no way that the modifications can work. Even with that there is a good chance the mod may not work. Housing Wire profiles a 70% failure rate of Fannie Mae's HomeSaver Advance program. While HomeSaver is not a loan mod program, it is a one to avoid foreclosure due to temporary economic problems. Let's take a look -

Fannie first launched the HomeSaver Advance (HSA) program in February ‘08 as a solution for borrowers experiencing temporary hardship. It allows servicers to offer unsecured, personal loans so delinquent borrowers can keep up on payments until the temporary hardship — unemployment, sickness, etc. — passes and borrowers can resume regular payments.

“This loan can offer these borrowers another alternative, and help prevent a temporary setback from becoming a foreclosure,” a Fannie executive in the single-family credit risk management division said in a media statement announcing the program.

But as mortgage performance deteriorated through ‘08, Fannie’s conservator, FHFA, noticed an alarming trend among the mortgages participating in the advance program.

“HSA is showing high redefault rates on the early offerings,” FHFA director James Lockhart noted in a Congressional report this week. “Performance on the February through April offerings shows a redefault [or recidivism] rate of almost 70%, which calls into question the program’s assumptions that borrowers have the capacity to make payments going forward.”

With the ever increasing unemployment rate even the best mods are doomed to fail at high rates.

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