New Mortgage Release™ Program Offers a 'Powerful Foreclosure Alternative'
May 14, 2013
Mortgage Release™ is a new Fannie Mae deed-in-lieu of foreclosure program that releases struggling homeowners from mortgage debt obligations when they voluntarily transfer ownership of the property to Fannie Mae. It's a viable option for those who are ineligible for a loan modification due to insufficient equity, debt ratio, or mortgage delinquency, or for homeowners who want to leave their property but don’t have the option of a short sale. Mortgage Release presents such borrowers with flexible transition options that allow them to leave on their own terms.
Mortgage Release is part of the Servicing Alignment Initiative, an FHFA directive to establish consistent policies and processes for the servicing of delinquent GSE-owned loans.
“We recognize foreclosure doesn't have any benefits, and that’s why we put together programs like Mortgage Release,” said John Kennedy, director of Fannie Mae's National Servicing Organization. “The program provides homeowners an easy process and the ability to exit their home gracefully.”
Mortgage Release program benefits include:
- More Help – Homeowners avoid the often stressful process of trying to sell their property if it is not feasible. By voluntarily turning over the property to Fannie Mae, they avoid having to get a real estate agent, list and show the property, and find a qualified buyer.
- Greater Flexibility – Homeowners are offered three exit options: 1) They can choose to move out immediately without waiting for the property to sell. 2) They can continue to live in the home for up to three months without having to pay rent so they can save cash for their transition out of the home. 3) Or they can opt to lease the property for up to 12 months at a fair market rent — a practical option for families with children who need to finish the school year or those who need more time to plan their move.
- Better Privacy – Unlike foreclosure, which is a matter of public record and often appears in local newspapers, the Mortgage Release program is private and confidential.
- Faster Credit Eligibility – A borrower may be eligible for another Fannie Mae loan (to purchase a home) in as little as two years, contrasted with up to a seven-year wait after a foreclosure.
- Possible Cash for Relocation – Qualifying participants may be eligible to receive up to $3,000 for relocation assistance to help offset moving expenses and to make the transition easier.
An effective Mortgage Release program can provide benefits to the investor, servicer, and homeowner, said Mike Rawls, executive vice president of loss mitigation at Nationstar Mortgage, one of the largest servicers in the United States.
"Investors and servicers are able to expedite the liquidation process on severely delinquent loans while providing the borrower with a dignified alternative to foreclosure," he said. "In many cases, the borrower is also eligible for relocation assistance to further ease the transition. With increased options allowing borrowers to lease back for short periods of time, a servicer and borrower can work together on timing of the relocation. Couple this with relocation assistance funds made available to most borrowers, and the Mortgage Release program becomes a very powerful foreclosure alternative."
Qualifying for the Mortgage Release Program
Borrower eligibility requirements include:
- The home can be owner-occupied, occupied by a non-owner, a second home, or even vacant. The property cannot be in serious disrepair, have major structural problems, or have environmental hazards or legal concerns.
- The borrower must have a valid hardship, such as unemployment, reduction in income, divorce or legal separation, long-term illness or disability, death of a household wage earner, victim of a natural disaster, or other circumstances beyond their control. For borrowers who are 90-plus days late on their mortgage and have a credit score lower than 620, no hardship documentation is required.
- For non-delinquent mortgages, the borrower’s total debt-to-income ratio must be greater than 55 percent.
Homeowners can discuss this option with their mortgage company or contact a Fannie Mae Mortgage Help Center for more information.
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