The Federal National Mortgage Association, aka Fannie Mae, and the Federal Home Loan Mortgage Corporation, aka Freddie Mac, have been frequent targets of sharp criticism in this column, mostly because of their “ambivalence” (a kind euphemism) in enforcing their own mortgage relief rules, rules meant to protect homeowners with troubled mortgages. To put some context to this however, a brief description of who Fannie and Freddie are, and the role they play in the U.S. mortgage market, is necessary.
Fannie and Freddie’s origins go back decades, when the federal government decided to roll up its sleeves and get actively involved in spurring home ownership for all Americans by broadening the base of home financing. Until 2008, when the housing market crashed, these institutions were known as Government Sponsored Entities, or GSE’s, meaning that they were technically privately owned, but in fact heavily supported in many ways by the government. That changed dramatically when the housing market crashed in 2008. Since then, the government has poured hundreds of billions of dollars into propping them up, resulting in them being placed under a conservatorship, meaning that we can’t trust them with our money.
Most people think of a Fannie or Freddie loan as being government owned. Technically, this is incorrect. Fannie and Freddie’s loans are securitized, just like 95 percent of all home loans in this country. A Fannie or Freddie loan is different only in that one of those entities is acting as the trustee of the trust where the loan resides, along with thousands of others, as opposed to Bank of America, Chase, Wells Fargo, or some other Wall Street Bank. At least in theory, Fannie and Freddie borrowers are supposed to enjoy protection against fraudulent servicing practices and foreclosure under rules known as “servicing guidelines.” These guidelines, which can be found on each entity’s website, were formulated with the basic purpose of trying to keep people in their homes.
Now back to the reason we’ve railed against Fannie and Freddie so often in this column. The reason is that they never enforce their own rules against the loan servicers. Thus, if you are making your payments to Bank of America, for example, but your loan is a Fannie Mae loan, BOA should be acting according to Fannie’s rules, including procedures to be followed meant to keep you in your home before filing foreclosure. Unfortunately however, as indicated, Fannie never enforces its rules, and the banks therefore routinely ignore them.
As evidenced by Denise’s story, chances are that in today’s climate where Fannie and Freddie’s corrupt conduct has been publicly exposed, the rules will be enforced once you stand up to the bank and demand vindication of your rights. Denise first came in to see us in April 2012. Denise was separated from her husband and hadn’t made a payment on her $130,000 mortgage for several years. Unbeknownst to her, her bank filed a foreclosure complaint two months earlier. After a yearlong battle, Denise’s bank relented in its effort to take her home away and made a Fannie-sponsored modification proposal which should keep her safely in her home for years to come. Consider the side-by-side comparison numbers of the proposal:
Old Loan Terms New Loan Terms
Interest Payment: $933 $668
Taxes and Insurance
Payment: $1,233 $972
Interest Rate: 6.125% 2% (capping at 4.25% from years 8 through 28)
The sad fact is that Denise should not have been put through years of torture by her bank as she tried to gain the above modification. On the other hand, the good news is that after some push back, her bank did a about-face and gave her the relief she deserved all along. Does Fannie or Freddie lurk in the background of your loan? If so, like Denise, you probably can use these changing times to your tremendous benefit and keep your family in your home.
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Copyright 2013 Daniel L. McGookey