Effective February 1, 2012, loan servicers MUST provide assistance to unemployed homeowners with mortgages owned by Freddie Mac.
How can you find out if your mortgage is owned by Freddie Mac?
- Call the 800 number on your mortgage statement, and ask the servicer. If the operator will not tell you, ask to speak to a supervisor. Get that person’s full name, or their first name and employee ID number, and then say, “I am entitled to this information under the Truth in Lending Act, 15 U.S.C. §1641(f)(2)” If they still won’t give it to you, go to step 2 below, and also send me an email telling me about your problem.
- Go to Freddie Mac’s website and enter your information. Make sure your address is entered in exactly the same way it appears on your mortgage statement. If they say they own your mortgage, you can rely on that. If they say they don’t own your mortgage, that might be a mistake. Keep trying to get an answer from the servicing company.
Under the new rules, the servicing company MUST consider unemployed borrowers for relief. That relief might be suspension of mortgage payments entirely (called “forbearance”) while you are unemployed, or it might consist of reduced monthly payments. Eligibility depends on providing the correct documentation and meeting the Freddie requirements. If you do that, the servicer CANNOT turn you down.
Does the servicer have to “wait for investor approval?” [Are you SICK of hearing that phrase?] No, they do not. The servicer has the authority to grant forbearance or payment reductions for the first six months. If you are still unemployed at that point, they can give you another six months, but they DO have to get Freddie approval first.
Even if a borrower is in a trial modification plan when he or she becomes unemployed, they can qualify for suspension or additional reduction of their monthly payments.
Read the Freddie Mac bulletin for more information.
To be eligible, the borrower must document they will receive unemployment benefits, or currently receive them. For you readers in Alabama, please note that independent contractors (such as real estate agents) and under-employed persons (former CEOs now working at a convenience store) are not eligible for unemployment benefits. Other states might have different rules.
What about Fannie Mae? Fannie already has a similar program in place. To find out if your loan is owned by Fannie Mae, follow the same steps as above, except that the “Does Fannie own my mortgage?” website is HERE.
Please remember that payment “forbearance” is not the same thing as “forgiveness.” You will still owe the missed payments when you become employed again. You will have to repay those payments immediately (fat chance of that happening) or via a repayment plan, or by modifying the entire mortgage.
What’s my opinion on all of this? I want to say to Washington, “Quit spraying disinfectant on a leg with gangrene. It isn’t going to save the leg, and it hurts like the dickens the whole time. Amputate the leg! Start granting wide-spread principal reductions for mortgages, with a five-year recovery period. In other words, if you owe $200,000 on a home worth only $100,000, then reduce the principal to $100,000. If you sell your home in the next five years for an amount above the reduced mortgage balance, the lender will be repaid the reduced mortgage balance, plus a certain percentage of the remaining purchase price. In my example, if you sell the house for $150,000 within one year of the principal reduction, $100,000 would pay off the reduced mortgage balance, and the entire $50,000 “profit” would be paid towards the other $100,000 previously written down. You would not owe any deficiency. If you sell for the same price, but in the 2nd year after the reduction, you would pay the $100,000 reduced mortgage amount, plus 80% of the “profit.” You get to keep the other $10,000 of sales proceeds. If you sell in the 3rd year after the reduction, you get to keep $20,000. And so on. If you sell your home any time after the 5-year anniversary of the write-down, you keep all the money except what is necessary to payoff your reduced mortgage balance. ”
That’s just my opinion. For now, keep abreast of all borrower assistance programs, and take advantage of any that might help.