|Despite your best efforts to bring
your mortgage current, sometimes temporary financial setbacks occur.
Rather than foreclose, most lenders would rather work out a solution
that protects their profit interests. Foreclosure workout plans depend
on several factors so becoming familiar with all your options places you
in a stronger position when dealing with your lender's workout agent.
Most lenders administer the following five specific plans:
1. Repayment Plan A formal
repayment plan that may include special forbearance and is
structured to allow you to repay delinquent installments and/or
payment advances to bring the mortgage current.
2. Loan Modification One or more of
the terms of the loan are changed to bring the delinquent mortgage
3. Assumption An enforceable
"due-on-sale" clause is waived to allow a qualified buyer to assume
the mortgage of a delinquent borrower.
4. Preforeclosure Sale The
proceeds of a sale are accepted as full satisfaction for the
mortgage obligation even if it is less than the mortgage balance.
5. Deed-In-Lieu of Foreclosure The
borrower voluntarily deeds the property to the lender to avoid
Special Circumstances These
are special situations involving natural disasters and bankruptcy.
Fannie Mae Contact Directory
The formal Repayment Plan is the preferred workout option because it
is the least costly workout alternative. It is usually considered when
delinquency is the result of;
- The death of a contributor to the monthly mortgage payment
and this does not necessarily have to be a person on the
- Illness, catastrophe, or natural disaster for which the
borrower is not insured; or
- Any similar or contributing factors. Repayment plans may be
customized to fit most any need or solution, however they cannot
exceed 24 months. (see Special Forbearance)
Modification (replacement mortgage)
This is a change to the terms of the mortgage in order to remove
a delinquency and avoid foreclosure. Modification includes reducing
the interest rate, extending the term of the mortgage, negative
amortization, replacing an adjustable rate with a fixed rate and
capitalizing the delinquent payments.
Modification is appropriate when the potential for a
Repayment Plan is needed due to a
permanent or long term reduction in income. Other lienholders having
a recorded interest in your property must agree to subordinate their
interest to the new loan.
A particularly attractive workout solution if you have sufficient
equity in the property to pay-off junior liens using the new loan.
You may qualify for loan modification if you are experiencing
a permanent or severe financial hardship.
Normally your obligation-to-income ratio should not exceed
36-38%. Divide your total debt by the remaining term of the loan
(more than six months) by your total income. This will give you
a close estimate however, if the ratio is greater than 50% your
plan is not likely to be approved.
The transfer of ownership to a buyer willing to assume full
responsibility for the mortgage obligation.
While some loans, including most adjustable rate mortgages (ARM)
are assumable without prior approval or buyer qualification, many
others contain a "due-on-sale" clause allowing the lender to require
the full amount to be paid in full.
Note: Fannie Mae will waive existing,
enforceable "due-on-sale" clauses on conventional mortgages (fixed
rate or fully amortized) in order to complete a sale and avoid
In order to avoid foreclosure, the lender and borrower agree to
accept the proceeds of the sale to satisfy a defaulted mortgage even
if the sale results in less than the mortgage balance.
In order to be eligible for this option you must be experiencing
financial hardship as a result of involuntary reduction in income
and an unavoidable increase in expenses that exceed income.
Unavoidable causes include:
- Lay-off or loss of job
- Disability, or prolonged illness
- Death of a mortgage contributor
- If self employed, a business set-back
You will have to accept the following conditions:
- Listing the property for sale will not delay initiating or
continuing foreclosure action, but the terms of the agreement
will be honored pursuant to a sale before the foreclosure date
- You agree maintain the property
- You agree to off-set any of the lenders losses (usually
- You may have a tax liability if any of the debt is forgiven.
- The property is free of liens. If other liens exist, the
lender must agree to the workout pursuant to the eligibility
requirement for an assumption
- The lender retains the right to negotiate and approve the
Deed-in-Lieu of Foreclosure
You avoid foreclosure by voluntarily surrendering the property by
deeding it to the lender as satisfaction for the debt. It is
appropriate when . . .
- The property has been on the market as a
Preforeclosure Sale for three
or more months .
- There are legal obstructions to foreclosure action
- Deed-in-lieu allows the lender to take possession of the
property sooner than would be possible through foreclosure.
You may be eligible for this option if you meet certain hardship
requirements outlined in this document and all junior liens are
Natural Disaster: Most lenders follow the Fannie
Mae policy of making every effort to avoid foreclosing on properties
effected by catastrophe or natural disaster. These properties are
almost always protected by insurance or government policy.
Bankruptcy Foreclosure can stop a pending
foreclosure but not completely avoid it. The delaying tactic will
gain you time to put together a workout plan. Ultimately, if you do
not work out a solution with the lender, the mortgage will foreclose
and you'll lose the house. The upside is that under bankruptcy you
may be relieved of any deficiency after the sale of the home.
See these pages for more information:
Use the following information to contact a regional Fannie
Mae office to ask for help in designing a foreclosure workout.
Fannie Mae Washington Office
3900 Wisconsin Avenue. NW
Washington, DC 20016-2892
Midwestern Regional Office
One South Wacker Drive, Suite 1300
Chicago, IL 60606-4667
Serving: Illinois, Indiana, Iowa, Michigan,
Minnesota, Nebraska, North Dakota, South Dakota
|Northeastern Regional Office
1900 Market Street, Suite 800
Philadelphia, PA 19103-0012
Serving: Connecticut, Delaware, Maine, Massachusetts,
New Hampshire, New Jersey, New York, Pennsylvania,
Puerto Rico, Rhode Island, Vermont and the Virgin Islands
|Southeastern Regional Office
950 Eat Paces Ferry Road, Suite 1900
Atlanta, GA 30326-1161
Serving: Alabama, District of Columbia, Florida, Georgia,
Kentucky, Maryland, Mississippi, North Carolina, South Carolina,
Tennessee, Virginia and West Virginia
|Southwestern Regional Office
Two Galleria Tower
13455 Noel Road, Suite 600
Dallas, TX 75240-5003
Serving: Arizona, Arkansas, Colorado, Kansas, Louisiana,
Missouri, New Mexico, Oklahoma, Texas and Utah
|Western Regional Office
135 N. Los Robles Ave., Suite 300
Pasadena, CA 91101-1707
626-396-5300 Fax: 626-396-5481
Serving: AK, AZ, CA, Guam, HI, ID, MT, NV, OR, WA, WY
Remember . . . just about any reasonable plan
will be accepted because the lender would rather work out a plan than to
foreclose and lose a profit.