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.