New Fannie option: Live rent-free for three monthsby Tim Manni
The post below was written by HSH.com contributing writer Poonkulali Thangavelu. This is Poonka’s first contribution to the blog.
In a bid to follow up on the Federal Housing Finance Agency’s (FHFA) directive to streamline their “deed-in-lieu of foreclosure” program, Fannie Mae has announced some changes–their first being to replace all references of “deed-in-lieu of foreclosure” with “Mortgage Release” program.
Most notably, Fannie Mae now offers a third option to borrowers eligible for a Mortgage Release that its previous program did not: you now have the option of remaining in your former property—rent free–for three months during what Fannie refers to as a transition period. You’re required to vacate the property after the three months are up.
The other two Mortgage Release options are:
- Moving immediately following the release
- A 12-month lease option, paying the going market rent
Andrew Wilson, director of media and external relations with Fannie Mae in Washington, D.C., says that the Mortgage Release program provides more leeway to prevent foreclosures.
“In some cases, borrowers may not qualify for a modification, they may not be able to do a short sale where you sell the property for less than what the home is worth,” says Wilson. “So these options do give the borrower another set of choices to pursue in order to avoid foreclosure if they cannot afford their mortgage.”
Wilson also says that the program seeks to streamline the process for servicers so they can make a Mortgage Release more efficient and easier.
Servicers must first evaluate your “delinquency status” at the time of application to ultimately determine if you are eligible and what documentation you must provide. There are a host of specifics which pertain to each delinquency status that dictate your eligibility. Here are the basics:
- Less than 31 days delinquent: The property must be your principal residence and your debt-to-income ratio should be higher than 55 percent
- More than 31 days delinquent: The property can be a principal residence, your second home, vacant or occupied
- More than 90 days delinquent: If you are more than 90 days delinquent, you must be experiencing a hardship. Your specific hardship will determine if and how you must document your hardship. If your credit score is below 620 and you’re more than 90 days delinquent, your servicer has the option to approve you for a streamline Mortgage Release which doesn’t require you to document your hardship
In addition to borrower eligibility, the property must meet certain maintenance requirements to be eligible.
In some cases, you may be required to put in a cash contribution or make out a promissory note towards future contributions.
If you are involved in any litigation, other than anything foreclosure related, the loan will not qualify for the mortgage release program.
While encouraged to enact these changes as soon as possible, Fannie Mae officially requires servicers to adopt the updated guidelines on loans considered for a Mortgage Release on or after March 1, 2013. Servicers must explore all feasible home-retention options before moving forward with a Mortgage Release.