Mortgage News: Principal Reduction Program for Fannie Mae and Freddie Mac Loans
by Bonnie B. from Newville, PA
April 2016 Mortgage News: Principal reduction program for Fannie Mae and Freddie Mac loans: Homeowners with Fannie Mae or Freddie Mac (GSE) mortgages are breathing a collective sigh of relief this week. Federal Housing Finance Agency (FHFA) Director Mel Watt reversed a set-in-stone policy that restricted struggling homeowners with Fan 'n Fred financing from receiving principal reductions to create an affordable mortgage during the loan modification process.
Bypassing the politics of such a move as well as the pros and cons for tax payers (you can leave a comment if you wish, though
), I'll jump straight to the heart of the matter for borrowers.
If you have financing backed by Fannie Mae or Freddie Mac, you may be one of 33,000 distressed homeowners eligible for a reduction of your mortgage balance. Yep, principal payoffs (not principal forbearance) just like the actual reductions you've heard your neighbors with non-GSE financing discussing at annual block parties.
Following this breaking news, Bonnie asks about a Wells Fargo Mortgage Assumption Modification to free herself of the financing on a home that went to her ex-spouse in the divorce.
Qualifying for Principal Reductions of Fannie Mae and Freddie Mac Mortgages During Loan Modification
The Fannie Mae and Freddie Mac criteria for approving principal reductions...
- Mortgage payments must be at least 90 days delinquent on or before March 1, 2016.
- Principal balances can be no more than $250,000.
- Owner-occupied properties only.
- Loan-to-value ratios must be greater than 115 percent. Here's simple help for calculating loan-to-value ratios.
Get in Line for Principal Reductions for Fannie Mae and Freddie Mac Loans
If your loan servicer determines that you're qualified for reduction in the principal balance of a mortgage backed by Fannie Mae or Freddie Mac, you should receive a letter before Oct. 15, 2016. I suggest you start calling your loan servicer ASAP! Don't forget, it's the squeaky wheel that gets the grease
Ask Kate: Wells Fargo Mortgage Assumption Modification By Bonnie B. from Newville, PA
Here's the deal. I left my ex-husband in April 2014. We have been officially divorced as of January 2015.
In the marital agreement, he was given the house AS LONG AS he kept the payments current AND refinanced to get the house out of my name (mortgage is in my name only) within 6 months.
It is now April 15, 2016, and the house has been to sheriff's sale 3 times already with another date set for June 1. He has failed to make a single payment, yet somehow he tried to do a mortgage assumption has allowed Wells Fargo to stop the sales and allow my ex to gather necessary paperwork for his stalls.
Recently in Dec 2015, he filed for partial bankruptcy and stalled it again. Now, my lawyer who I'm really fed up with, has done nothing upon nothing to push this along. The way I see it, and confirmed by the stuff that Wells Fargo tells me, is that the only option for getting my name off the loan is for him to refinance. Per the marital agreement, I am owed $8,000 in lieu of him being given the house.
I got a call today that my ex is working thru Wells Fargo to do an Assumption Modification that will remove my name entirely. This is all fine and dandy, but I've been told by numerous Wells Fargo employees that this does not remove my name. It just adds his name onto the loan so he can make payments, but if he fails to make payments it comes back on to me.
I want to know for certainty if an Assumption Modification really does take my name off of the loan and transfers everything to him, making him 100 percent liable. Or if his only real option is to refinance the mortgage.
All in all, I don't want the house, but I do want my $8000 and my name removed from it all. Any thoughts would be appreciated. Thanks, Bonnie
Kate's Answer: Wells Fargo Mortgage Assumption Modification
I feel your pain. And I so wish attorneys would think ahead to the possibility of these scenarios when writing up the terms of a divorce in regards to the mortgage. See Divorce Your Mortgage to Protect Credit Scores
FHA Simple Assumptions
In years past, a borrower who sold his home using the FHA Simple Assumption program (for FHA mortgages originated before December 1, 1986) remained responsible for the mortgage until it was refinanced or paid off. If the new home buyer did not make his house payments on time, the previous homeowner also ended up with a ding on his credit report. Talk about a thorn in the flesh.
Loan Assumptions Do Not Automatically Guarantee Release of Liability
Even today, loan assumptions do not automatically guarantee that the original borrower's name is removed from the mortgage. The only way you'll know for sure if Wells Fargo is removing your name from the mortgage (and title) is to get copies of the conditions to the loan approval plus all final modification documents.
Assumption Modification vs Mortgage Refinance
As you mentioned, the straightest path to being released from the liability of the mortgage is for your ex to refinance, to pay off the loan with cash (doubtful that this is happening, right?), or to sell the home.
Best wishes getting released from the liability of the mortgage,
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