will reportedly let some underwater homeowners walk away from their
mortgages debt-free, beginning in March.
The deal comes with some pretty strict limitations though. To
qualify, homeowners must be facing a demonstrable hardship, be
current on their mortgage payments and have total debt obligations
of 55 percent of their income, according to reports from Bloomberg
Homeowners may also be required to contribute up to 20 percent
of their financial reserves, excluding retirement accounts, in
order to be approved.
Interested homeowners will be able to apply for what is known as
a deed-in-lieu transaction, where they surrender ownership of the
home in return for having their mortgage debt wiped out. Eligible
hardships include a job transfer, illness or other circumstance
that forces them to move.
Homeowners will be required to turn over the property in good
condition. That's a plus for the mortgage agencies, which often
take further losses on foreclosures when the former owners allow
the home to fall into disrepair or even vandalize it out of
resentment, sometimes stripping it of appliances and other items of
Goes beyond short sales
The new initiative goes a step beyond measures the two mortgage
guarantors took in November to make it easier for underwater
homeowners to dispose of their property through short sales,
provided they are current on their payments. The big difference
with the new initiative is that an underwater homeowner will no
longer be required to find a buyer to purchase the property in
order to get out of their mortgage.
With both the short sale and deed-in-lieu options, homeowners
must take a major hit to their credit scores as the price for
wiping out their mortgage debt. Those loans are reported to credit
bureaus as closed but not paid in full, which can have nearly as
much impact as a foreclosure on credit scores.
Fannie Mae and Freddie Mac reportedly own or guarantee more than
half of all U.S. mortgages, with a total value exceeding $5
trillion. There are currently estimated to be 7 million underwater
mortgages in the U.S., down from 11 million two years ago.
First published on MortgageLoan.com at: