Government-sponsored enterprise Fannie Mae, which owns or guarantees a substantial proportion of U.S. home loans, lists and explains the Fannie Mae loss mitigation options available to borrowers experiencing financial hardship. The 20-page table can be found online here, but I provided brief rundowns of the options are below. Fannie Mae suggests considering the options in the order they appear but notes that some options may better fit particular situations. See the table for more detailed descriptions, eligibility criteria, terms and conditions, reporting requirements, and costs.
The first several options are home retention:
Forbearance temporarily reduces or suspends payments on a mortgage loan for a specified period. Forbearance is considered when the default results from particular financial hardships related to things like natural disasters or a temporary loss of income.
A repayment plan is an agreement where a borrower will repay outstanding arrears while still making regularly scheduled payments. Repayment terms may include monthly payments that are multiples of regular installments, a regular payment one month and multiple payments the next, more frequent payments, or other terms.
HAMP is the Fannie Mae Home Affordable Modification Program. This program uses a uniform loan modification process to provide eligible borrowers with affordable monthly payments. This is done to bring the borrower’s monthly payments down to 31% of the borrower’s gross monthly income. The eligibility criteria are extensive and include the ability to document a valid long-term or permanent hardship. HAMP will close to new borrowers at the end of the year.
2MP is the Fannie Mae Second Lien Modification Program. It is designed to work with HAMP to help borrowers by lowering payments on first lien and second lien mortgage loans. Among the eligibility criteria, a loan must be a second lien with corresponding first lien modified under HAMP, originating on or before January 1, 2009, and have an unpaid principal balance of more than $5,000.
Standard modification is designed to help borrowers who are ineligible for HAMP or who defaulted on a HAMP modification (and, sometimes, another Fannie Mae modification). While the standard modification eligibility criteria are detailed in the table, Fannie Mae will consider exceptions to those criteria when there are extenuating circumstances. The modification changes some terms of a mortgage loan to make it more affordable.
The following options are liquidation options:
Standard Short Sale
A short sale is when a borrower sells her home for less than the balance remaining on the mortgage, the proceeds pay off what is possible on the mortgage, and the lien against the property is then released. It can be initiated for eligible borrowers who are delinquent or facing imminent default, can no longer afford the mortgage or do not qualify for retention workout options, and want to avoid foreclosure.
A Mortgage Release occurs when a borrower transfers title to and possession of her property to Fannie Mae to satisfy the mortgage loan debt and avoid foreclosure. A Mortgage Release may be appropriate for borrowers who do not qualify for a home retention solution and for whom a short sale is not a viable foreclosure prevention alternative.
HAFA Cases in Progress
The HAFA program expired on December 31, 2012. For HAFA agreements executed prior to that date, the transaction must be closed or settled on or before September 30, 2013.
In addition to these Fannie Mae options, homeowners who can afford their regular monthly mortagage payment, but just need a chance to get caught up with past due amounts, may benefit from a Chapter 13 bankruptcy plan to stop foreclosure and work out the past due amounts.