Landlords, investors and owners of second homes in various stages of default are not eligible for a loan modification under the federal government’s Home Affordable Modification Program (HAMP). However, Fannie Mae has recently introduced a Payment Reduction Plan (PRP) made specifically for these individuals.
Under the PRP, landlords, investors and owners of second homes (borrowers) may temporarily lower their monthly loan payments while they negotiate a foreclosure prevention solution with a loan servicer.
A borrower’s loan payments can be reduced by up to 30% of the contracted principal and interest payment (P& I) for six months if the borrower is willing and able to afford reduced payments of at least 70% of the P & I payment. The loan servicer must devise a permanent payment solution within the first three months after agreeing to the modification and implement it by the sixth. The borrower must continue to pay insurance, taxes and any other escrow payments during the PRP six month forbearance period.
The borrower’s loan must be:
- a first lien held by Fannie Mae or a mortgage-backed security originated no earlier than April 20, 2009; and
- secured by a one-to-four unit property, including second homes and investment properties.
The loan may not be secured by a condemned property or be superseded by recourse or indemnification agreements.
Servicers must ensure the PRP does not interfere with any existing private mortgage insurance (PMI) policy already in place.
If the borrower fails to make a payment 15 days after its due date during the six month forbearance period and the loan servicer determines a permanent modification is not feasible, foreclosure proceedings will immediately commence or resume.
For participating in the PRP program, servicers receive $200 from Fannie Mae, plus any other incentives which may be paid upon completion of a permanent loan modification.
The PRP program replaces the HomeSaver Forbearance (HSF) program.
For more information, visit the PRP section of Fannie Mae’s website here.
first tuesday take: Similar to the modifications provided under HAMP, PRP modifications will likely leave bad loans bad. Instead of reducing the principal balance, they will only extend the loan terms or minimally reduce the interest rate. Thus, PRP modifications may buy some time but will ultimately only delay the inevitable foreclosure and do nothing to promote long-term stability.
The only real cure is based on the value of the real estate securing the loan, not the present willingness of the property owner to pay endlessly on a “dead end” loan which, sure enough, will hamper any recovery efforts by sucking up disposable income. Judicial authority must be given to bankruptcy judges to cram down loans, not only on the investment properties and second homes, but on primary residences to levels consistent with or lower than a property’s present fair market value (FMV).
Cramdowns have been the first tuesday battle cry since the beginning of the Great Recession and are no less appropriate here.
Re: “Real Estate Investors, Landlords Reduce Your Rental Property Loan Payments by 30%,” from the American Apartment Owners Association.