Fannie & Freddie have Good News for Underwater Mortgages

For homeowners with Fannie Mae and Freddie Mac loans, the much anticipated good news may have arrived this past week.  On March 1st, Fannie and Freddie will start allowing homeowners with underwater mortgages (they owe more than the property is worth) to give up the house and cancel their debt by a deed-in-lieu of foreclosure. 

Who qualifies for deed-in-lieu transactions?  Well according to the new rules:

• Homeowners must must be current or less than 90 days late on their mortgage payments. 
• Homeowners must by making payments of at least 55 percent of their monthly income for the house.
• Homewoners must be able to document a "hardship" that requires a move, such as loss of spouse.
• The home must be clean and not damaged.

Once a homeowner qualifies, they should know that it is not the perfect solution.  A few things to know about:

• Homeowners may have to surrender as much as 20 percent of personal assets, excluding retirement accounts, to partially meet the loan's unpaid balance.
• The program does not affect second mortgages.  Mortgage servicers can offer up to $6,000 for second-lien holders to release borrowers from the loans, but there's no requirement that the holders agree.
• A deed-in-lieu will still affect your credit, but not to the extent of a foreclosure.

Even with all of the restrictions, the new Fannie and Freddie program is a viable option and good news for homeowners who must move due hardship and have underwater mortgages.

For more information on the program, click here for the new rules.

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