Federal Home Loan Mortgage Corp (OTCBB:FMCC) introduced new rules on delinquent loans. The revised rules are also presented by Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA). The buyers of mortgages have to reconsider delinquent borrowers for the purpose of loan modifications.
Investors who are interested in delinquent loans supported by Federal Home will have to give extra time and make more efforts to complete deals. The borrowers will be permitted to keep their homes before they are pushed out. The accomplishment of such rules will lessen the number of foreclosures. The concerning part is the cost will pass to taxpayers.
The available alternatives
Federal Home rules require investors to evaluate many other options like forgiving mortgage principal or opting for a short sale, or then extending loan period before foreclosure. Also, there will be obligation to market the property for at least twenty days in the event of foreclose. The investors will have an option to decide whether it want to sell property to nonprofit groups or not. It can even sell to buyers who intend to live in the house. The investors will not be allowed to sell the property to those buyers who want to sell it in the future.
Purchaser, not creator
Federal Home buys loans from lender and is not into making of mortgages. It acquires a loan and then transforms it into securities so that they can act as guarantees to investors during default. The idea is to mitigate losses by either foreclosure of the property or by getting a borrower who can pay for it. The conversion of loan into securities takes time and therefore Federal Home decided to shun off the nonperforming mortgages to investors who are capable to complete the process on their own. They can even go ahead and reduce mortgage amount, which federal Home and Federal National are prohibited from doing.