Skipping Payments without ruining your Credit

FANNIE MAE TO ALLOW THE BORROWER TO SKIP UP TO TWO MONTHLY PAYMENTS PER YEAR WITHOUT PENALTY IN A NEW LOAN PROGRAM





FACTS:





Fannie Mae is conducting tests with lenders around the country on a loan concept it calls ”payment power.”





It takes a 30-year mortgage that comes with a built-in feature that the borrower can use or hold in reserve for future use for holidays, vacations or an emergency.


The loan contract will allow the borrower to skip up to two monthly payments per year, any time, or up to 10 payments during the life of the loan.





The “skip” feature is available on mortgages for purchases or refinancing or single-family homes, two-unit houses or condominiums.





There is no late fee or other charge when the borrower exercises the right to skip. The unpaid amount simply gets added into the principal balance of the loan and is amortized over the remaining term of the mortgage.





HERE’S HOW IT WORKS . . .





If the borrower takes out a $150,000 loan for 30-years at 7%, the monthly payments, including escrowed taxes and insurance will be $1,297.99. When the borrower decides to skip a payment, the borrower contacts the lender in advance.





The lender verifies that the borrower has been making all the payments on time which qualifies them for the skip. The $1,297.99 is then added to the principal balance and capitalized over the remaining term of the mortgage. This will change the payments to $1,306.85 and increase of $8.66.





Each time there is a skip, the same procedure is followed up to a maximum of ten times. The borrower credit is not affected at all.








The type of borrower to whom this type of loan may be attractive is seasonal labor such as field labor, summer work, or someone who fears a temporary loss of income. There is a one-time charge at the beginning of the loan for this added feature of $600 on a $100,000 loan.





The cost can be split between the home sellers and buyers or real estate agents and buyers or simply added into the interest rate on the note. The product is still experimental so ask your lender if it is available. Most lenders don’t expect this product to be ready until December 2002.





MORAL:





Sounds to good to be true? WRONG. Let us see. The borrower now pays an additional $600 per $100,000 they borrow in order to add the feature. Now the borrower has an additional cost of $1,200 for a $200,000 loan, which is a finance.





Now you (the borrower) can exercise your right as set forth in the example above. And skip one $1,297.99 payment if you choose to. If, using this example, you have twenty years remaining on the loan, it is like financing the $1,297.99 at 7% for 20 years or $8.66 per month for 240 months. You won’t suffer a credit ding if running into a cash crunch.








This has been done for years in the finance industry. It’s a good default cure tool. However, there is a fee for this extension and usually it’s paid for upfront.





Fannie-Mae(Federal Mortgage Insurer) is working with an insurance company to include a mortgage payment protection insurance policy which would, if a mortgage borrower became unemployed, make up to 6 months mortgage payments up to $2500.





This used to be called a "Modification". Some still call it that? It’s a good option, the borrower simply calls up their lender and says: I need help!





If you want the technical name, they are called Debt Suspension Agreements and Debt Cancellation Contracts. (DSAs and DCCs).


Misuse of Credit Cards have actually been the cause of this type of workout plan.





Fannie-Mae has recently chose to popularize/publicize theirs.





Should you not have success in obtaining an affordable workout plan or would just like some help in doing so… feel free to contact me here on TCI!





Best of Good Fortune,








Derrick Ali