Does Freddie Mac "forgive" the balance after a loan modification?
April 11, 2012: 5:05 AM ETI am underwater with my Freddie Mac mortgage by $100,000. Does Freddie Mac "forgive" the difference between loan and value in a loan modification?
—JoAnn, Sussex County, Del.
First, the entity that decides whether to modify a loan is usually the loan servicing company, not Fannie Mae or Freddie Mac. Loan modifications vary widely in the terms and conditions under which changes to a loan can be made. As a general rule, however, being underwater on your mortgage isn't an acceptable reason for requesting a loan modification. And the federal regulator overseeing Fannie and Freddie has indicated in recent months that he's not interested in reducing the loan principal of people who owe more than their house is worth.
Most loan servicers will not consider modifying a mortgage unless the homeowner is behind in mortgage payments or can demonstrate that he or she won't likely be able to continue making those payments, according to Skip Dyer of Randolph Bank in Cary, N.C. If that's the case, the loan modification may include a reduction in the amount owed. Modifications can also involve lowering the interest rate, deferring payments for a period of time or extending the term of the loan. Also, any modification will be contingent upon your demonstration that you are likely to be able to make the new payment on the mortgage.
If you're still interested in pursuing a loan modification, Dyer urges you to avoid companies which claim they can get you a loan modification, since success can never be guaranteed. If you pay a third party upfront for such a service, you'll probably be throwing away your money.
Although your main point of contact should be your loan servicer, know that both Fannie Mae and Freddie Mac have programs designed to help out struggling homeowners. One such program is the Home Affordable Refinance Program (HARP), which provides low cost refinancing options that can help lower your monthly mortgage obligations. Additional information about HARP and other programs that may prove helpful to you are available at knowyouroptions.com and at freddiemac.com.
-- Jeff Wuorio
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