If you haven’t been reading the most recent real estate news this week then you may not be aware that Fannie Mae has established a new Military Forbearance program for borrowers that are behind on payments, unable/unwilling to refinance, and suffering hardship due to loss or injury in active duty.
Is this an excellent idea, or a piece of goodwill propaganda on behalf of Fannie Mae? Perhaps it’s a bit of both. The good news here is that it’s designed to help people who are genuinely in distress due to sacrifices made while serving our nation. While it’s certainly a noble offering, my first impression of the program is that it comes off as a band-aid fix for a larger issue that’s at stake.
The program will suspend negative credit reporting and payment requirements for up to 6 months under this program, but once the time frame is up, where does it leave the borrower? The problem with government backed/sponsored refinance programs is that they rarely seem to work out, and those that do work out a deal suffer a more than 50% foreclosure rate anyways. This program offers no assurance that any sort of a deal can be reached, it simply places any delinquency on hold, and ultimately 6 months of breathing room offers little comfort in a market where the borrower is still very likely to be underwater and unable to pay after the forbearance ends.
The payments during the term aren’t forgiven, merely delayed. The amount must be repaid, either as an extension to the end of the mortgage, a higher monthly payment, or a one time lump sum repayment. Let’s be frank: None of these options are particularly appealing when the house is worth less than you owe anyways. The demographic of people who are likely to recover from financial hardship by using this program seems very narrow. Perhaps it would make more sense for Fannie to offer an option for those suffering military related hardship that guarantees a rate and principle cut instead?
If Fannie Mae is sincere in trying to help families that have lost spouses in active duty military service, I think it’s reasonable to offer an alternative that actually keeps them in their home for the long term, not just a few extra months. Find a way to guarantee a lower rate through principle reduction, rate drops, and then see what the success rate is for people that are getting genuine relief. It’s too late in the game to think that holding off payments temporarily is going to fix their financial woes. We’re in much deeper than that, folks.
(photo courtesy of John Morgan via Flickr CC)