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A hassle-free mortgage rescue? It's for real

If you're behind on payments -- even underwater -- Fannie Mae and Freddie Mac, may want to give you a no-document mortgage modification.

By Marilyn Lewis Jul 25, 2013 10:22AM

Mortgage due (© Hemera Technologies/Jupiterimages/Jupiterimages)If you're behind on your mortgage, good news -- "Avoid Foreclosure -- Act Now!" it might say -- could be waiting in your mailbox.


Wait! Don't toss it. It sounds like a scam, but this time the offer's legit.


The two big federally controlled mortgage agencies, Fannie Mae and Freddie Mac, want to give you a no-doc mortgage modification. You heard that right: No documents.

To get one of these refis, your mortgage has to be owned by Fannie Mae or Freddie Mac (look up your mortgage here.) The program ends Aug. 1, 2015. There are more requirements, of course. We'll get there in a minute.


Continued need

Since 2008, Fannie Mae and Freddie Mac have modified 1.3 million mortgages. That's about one for every household in a state the size of Utah. You'd think, with this huge push, everybody who needs a modification would have one by now.


Apparently not. Some 1.1 million borrowers -- not all with Fannie or Freddie mortgages -- are still behind on their payments, says CNN. The economy is better, but it's not back to normal. Unemployment, while improved, is high -- around 7.6%.


Bill Cleary, a senior Fannie Mae executive who talked with me by phone, didn't want to discuss the program's costs. "The reason why we would institute a program like this would be to reduce our expected credit losses," he said.


The plan is to cut red tape for borrowers in two ways:

1. No application. If you are eligible, your lender will reach out to you with a letter explaining the terms and your new payment. To sign up, just start making the new payment or call your mortgage company. It's worth calling to hear your options because a traditional modification could save you even more money.

2. No docs. Gathering the required paperwork for a modification and jumping through the mortgage company's hoops is a famously migraine-making ordeal. This "streamlined" program eliminates that.

The modifications reduce your payments by taking what you owe and stretching it over 40 years at fixed interest rate (currently 4%.)


Picture, for instance, a self-employed Vermont homeowner whose work has dried up. She's missed four house payments. She owes $179,000 on her home.


Her mortgage is at 5.35% interest. She wants to refinance, but banks would reject her. The home's worth just $150,000, so she's about 19% underwater.


The payments on her 30-year mortgage -- not counting taxes, HOA fees or insurance -- are $960 a month. A 40-year no-doc modification at 4%, drops her payment to a more-manageable $748 a month. (Use your own numbers with this mortgage calculator.)

The requirements

Fannie's and Freddie's eligibility requirements are similar. (Freddie's are here, Fannie's here. has a nice roundup here.


You can have had two other modifications, but no more. You must be at least three months late -- but no more than 24 months.


Doesn't this encourage stressed homeowners to stop paying so they'll qualify?, I asked Cleary.


If they do, he said, Freddie and Fannie's computer models should flag their cases. The programs screen for certain combinations of payment behavior and credit bureau data. Freddie's published rules, for example, rule out borrowers who were on time for five months or more and then abruptly stopped paying.

Borrowers who are flagged are screened more carefully but not necessarily eliminated. "As with any model, you are going to get some false positives. We don't want to be shutting out people who need our help," Cleary added.


You're allowed to have up to 20% equity in your home (or second home, or investment property.) You can be underwater by up to 30%. The mortgage must be 12 months old or more. If you meet the requirements, you'll get a 90-day trial. Make those three payments on time and your modification is permanent.


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Jul 25, 2013 11:49AM
if the lady in the article cannot pay mortgage at 960 and is 4 months behind, she probably cannot pay 748 either.  If no income it doesn't matter.  Plus might be changing from a non-recourse loan to one where they can sue her if she doesn't pay.  and 40 years, ouch!... i noticed that the bank is not writing down the principal.
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