Think about it - if you're underwater, what is a life saver going to do but float above you out of your reach . . it is not going to help you stay afloat. That is what FNMA is proposing with its bulletin to lenders on April 14 providing that borrowers that take a short sale in following with Obama administration's Home Affordable Foreclosure Alternatives program (HAFA) could be eligible for a new FNMA loan in two years, rather than the four years currently in place.
By relaxing the rules that would otherwise prevented loan applicants who have participated in short sales or deeds in lieu of foreclosure from obtaining a new mortgage for four years (five if the home actually goes to foreclosure), FNMA thinks that this will entice troubled borrowers to work out solutions that avoid the heavy costs of foreclosure.
But that qualification is with strings attached. Beyond the issue of not being able to qualify because of damaged credit from a short sale or deed in lieu, which will be on the borrower's credit well beyond two years (foreclosures and short sales generally have the same effect on a borrower's credit), the two year qualification provides that the "resurrected" borrower be able to put down 20% for the new loan - unless there are "extenuating" circumstances.
Now, we are dealing with people that cannot make current monthly mortgage payments, yet FNMA thinks that in two years, there people will somehow be able to make a 20% down-payment, after they lost any equity they had in the home they just lost. From where????
Actually, the only benefit I see is that these people that can make the 20% down will be able to do so by re-adjusting their finances to purchasing a house that they actually can afford. But something tells me most of these people will not be able to make this adjustment, or the required down payment.
Now, there is the "extenuating" circumstances provision that allows for only a 10% down payment if the borrower entered into the short sale or deed in lieu because of a significant financial occurance like a lost job, medical expenses or divorce. But just how large is that population of borrowers, and it still doesn't get past the credit damage issue (which would probably be worse in these situations anyhow). And again, these borrwers have suffered some major financial occurance, yet FNMA thinks that they will be able to pull together a 10% down payment in two years??? Bless them if they can.
So, who wins? Well, the servicers (and their parent organizations), not the borrower. By getting a borrower to agree to a deed in lieu, the servicer gets the borrower out of the home quickly, allowing for fast turnaround for a sale of the property. It also directs a borrower away from a possible loan modification (even a temporary one) with a promise that the borrower MAY be able to qualify for a new home loan in two years. This means no more advancing on the loan by the servicer. And the servicer avoids those costly foreclosure expenses (and any litigation that arises from it).
Well, lets hope that this life saver is wintery mint and not cinnamon, so the borrower's breath won't stink when he screams.
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