There is some good news for Veterans and their families for the year 2011. Struggling families will have some time before foreclosures are an issue for most of the year. Mortgage Servicers now have to wait until they can start foreclosure proceedings for service members, according to a new ruling given by Freddie Mac. After the veteran gets discharged, the servicing company will have to wait at least nine months before they can take any kind of action.
The idea behind this moratorium on foreclosures is that it should give these service members the breathing room they need to reestablish themselves. The housing industry wants to make sure that those that can get back on their feet do, and that those that have not prevented it, inevitably still end up in the foreclosure. Some lawmakers believe this will also give the housing recovery some time to straighten itself out on its own.
There have been a record number of foreclosures the past few years. In 2009 around 2.8 million homes faced foreclosures, with a similar number following in 2010. Foreclosures among veterans do not have a specifically disclosed number, but it is rather high according to a few sources. Of course, if lenders would consider reducing their principle balances the country may see fewer foreclosures in general. Unfortunately, the lenders have not done so yet. There are a few other solutions to try. Some lenders will agree on a repayment plan or “forbearance”. This is when the loan is suspended while the borrower accumulates sufficient fees or time to sell the property. They may also be able to obtain a loan modification, where the delinquency is added to the loan and a new payment plan is established. The VA also provides certain safeguards for a VA home loan. First, the VA prevents the lender from discriminating against the borrower in any way and can suspend the loan if any such discrimination is discovered. Second, the VA regulates the amount of closing costs that can be charged to the borrower. Third, the VA prevents any prepayment penalty. All three of these safeguards prevent against foreclosure or seizure.
This current suspension of foreclosure for veterans applies only to those loans that are backed by Freddie Mac. During the member’s active duty service, there will be a six percent interest rate cap. This will also apply for up to a year after they are released from duty. This is just an additional benefit to help veterans out during this time.
Fannie Mae recently initiated a program to help prevent foreclosures as well. This one is for members who are injured or for the families of a member killed during active duty. Fannie Mae presented a new forbearance plan, where service members can have their payments “reduced or simply eliminated” for up to six months.
Both of these government enterprises are striving to help veterans and service members. The executive vice president of Single Family Portfolio Management at Freddie Mac said, “Our military makes sacrifices every day to protect our homes and families. This small act will protect financially troubled service members when they return from active duty by giving them more time to work with their lender to stay in their home.” They are hoping to prevent foreclosures, but as stated before, this is for those willing to do their part also. The struggling service members will receive the nine months in order to get their payments on time and the mortgage stable, and if they do not use that time wisely, they will still be headed for foreclosure.
As always, any service member who is having difficulty making their payments should contact their mortgage provider as soon as possible to try and find a solution that will work the best for them. The Department of Veterans Affairs offers help and counseling to those who need it as well. Financial counselors can also work directly with lenders to set up repayment plans, loan modifications, and etc. Service Members do not have to have a VA loan to use these resources at the VA, but this does limit what they can do for those without a VA loan.