Why Foreclosure Prevention Is Not Enough

Fannie Mae has opened a new consumer education site which it says “outlines the choices available to homeowners who are struggling with their mortgage payments, and provides guidance on how they can contact and work with their mortgage company to find solutions.”

The site, Know Your Options.com, has the usual bells and whistles for a modern site and includes sections devoted to refinancing, repayment plans, forebearance, modification, short sales, deed in lieu of foreclosure and a deed-and-lease back plan.

The site also has some useful and nicely-laid out forms such as a financial checklist and a contact log. There is, of course, lots of advice against walking away from your home, a so-called strategic default.

“Through foreclosure prevention programs, borrower outreach, underwriting guidelines and servicer engagement, Fannie Mae is taking a comprehensive approach to helping struggling borrowers,” says Jeff Hayward, a Fannie Mae senior vice president. “Identifying accurate resources and finding the right answers can be a difficult challenge for borrowers facing hardship and a flurry of disparate, incomplete and sometimes fraudulent information. Know Your Options is the company’s newest effort to reach distressed homeowners and is designed to bring the best information and guidance together in one place so that struggling borrowers can focus on finding solutions that work for their particular circumstances.”

Where is the parallel site for would-be borrowers who have yet to have an encounter with lenders?

What’s Missing

The new Fannie Mae site has some valuable information and the site itself is certainly well-designed. That said, where is the parallel site for would-be borrowers who have yet to have an encounter with lenders? Why wait until someone faces foreclosure before providing valued consumer information? Why not have warnings and red flags in place to help borrowers at the beginning of the mortgage process?

The new Wall Street Reform Act provides a perfect platform for Fannie Mae and other major players in the mortgage arena to openly tell the public that we now have such a thing as a qualified residential mortgage. In basic terms that’s a conventional, FHA or VA mortgage underwritten with a fully-documented loan application, a mortgage where prepayment penalties are limited to the first three years of a fixed-rate mortgage and banned for ARMs. A qualified residential mortgage is also a loan with fewer than 3 points and where the lender has an obligation to assure that the borrower is receiving a net tangible benefit.

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