Here's some good news for homeowners facing tough financial times: You no longer have to miss two to three months of payments before your mortgage company can modify your unaffordable loan terms.
Starting immediately, Fannie Mae - the mortgage giant with an estimated 18 million home loans in its portfolio or in mortgage bond pools it guarantees - will allow borrowers who face imminent financial difficulties to request "early workout" loan alterations, even if they've never been late.
The policy change could help thousands of people who are losing jobs or facing layoffs as the recession crunches onward. Most lenders and loan servicers have declined to intervene in mortgage problems until borrowers are 60 days to 90 days late. At that point, so-called "loss mitigation" staffs may then try to work out solutions if possible - through rescheduling of back payments, forbearance and extending the loan term, among other techniques.
Under Fannie Mae's revised approach, servicers of the company's loans nationwide will be required to inform borrowers that if they are "reasonably" certain that changes in their income will cause them to miss mortgage payments, they might qualify for an advance loan modification - before they fall behind.
Borrowers who qualify will enter into a "trial" period of reduced payments, usually for four months. If they make payments on time during the trial, the modified mortgage terms could then be made permanent.
For example, say your spouse loses a part-time source of income, and suddenly you're short $400 a month needed to make your $2,000 mortgage payment. In the past, if you called your loan servicer, you'd likely be told that long-standing rules prohibit any help to you until you have become delinquent by several months.
But by that time, you might be thousands of dollars in the hole, racking up big late-payment penalties, and well along in the process of wrecking your credit scores.
Under the new early workout concept, by contrast, Fannie's servicers can now tell you upfront: We'll try lowering your monthly payments to accommodate the $400 in missing income. If you're current on the lowered payments after a four-month trial, and your income situation has not rebounded, we'll make the change permanent.
Officials said servicers will examine the facts in each case individually, check income, credit reports and other documentation to ensure that borrowers aren't faking income shortages just to get a lower payment.
