The Fannie Mae HomeSaver Advance loan program, which offers up to $15,000 in unsecured personal loan to help troubled homeowners avoid foreclosure, has been clipped.
The loan program is still in operation, but it is no longer offered as readily as before.
The unsecured loan program was launched early last year to help homeowners pay the monthly mortgage payments they missed because of illness, job loss or any other kind of hardship. Fannie Mae’s intention was to help homeowners who are temporarily set back by an unfortunate event to avoid foreclosure.
Borrowers are eligible if they have surpassed the hardship but have not yet covered their missed monthly payments. The loan was offered at a rate of 5 percent and a term of 15 years.
But the large number of borrowers who subsequently redefaulted on their home loans has made Fannie Mae and its supervising authority, Federal Housing Finance Agency, reconsider the program.
In the first 12 months of the loan program, Fannie Mae provided over 91,000 unsecured loans, with each loan averaging $7,100. Of the 3,300 loans provided to borrowers from February to April last year, 70 percent were provided to homeowners who redefaulted on their home loans.
The failure rate has declined since then, with approximately 60 percent of home loans taken out in the first three quarters of 2008 by borrowers who subsequently failed to pay at least two monthly payments or who ultimately failed to avoid foreclosure.
Amy Bonitatibus, a spokesperson for Fannie Mae, said that the HomeSaver Advance loan program continues to be used as an option to help homeowners avoid foreclosure, but she explained that the Making Home Affordable program and other foreclosure prevention strategies are now being emphasized.
John Snyder, foreclosure program director at housing nonprofit NeighborWorks America, said that many people have been borrowing relatively small amounts to avoid foreclosure, but he advised homeowners against using high-interest loans such as payday loans and credit card advances.
Snyder added that there are loans and grants offered by nonprofits, states and local agencies to struggling homeowners to help them avoid foreclosure, but these loans are not easily taken out.
Snyder’s advice for struggling homeowners is to first approach foreclosure prevention counselors affiliated with nonprofits or agencies that offer rescue loans. These counselors will evaluate their cases and connect them to entities that provide loans to help them avoid foreclosure.