New Military Forbearance Program may help the Kansas City Military at Ft. Leavenworth or will it?

If you haven’t been reading the most recent real estate news this week then you may not be aware that Fannie Mae has established a new Military Forbearance program for borrowers that are behind on payments, unable/unwilling to refinance, and suffering hardship due to loss or injury in active duty.

Is this an excellent idea for the military personnel at Ft. Leavenworth, or a piece of goodwill propaganda on behalf of Fannie Mae? Perhaps it’s a bit of both. The good news here is that it’s designed to help people who are genuinely in distress due to sacrifices made while serving our nation. While it’s certainly a noble offering, my first impression of the program is that it comes off as propaganda and not a fix for military veterans.

I first discussed the Military Forbearance program with 4 lenders that I'm currently negotiating short-sales. None of the lenders were familiar with the program.

Next I read the data from the website http://knowyouroptions.com/Military. The information seemed very generic and more like marketing propaganda. I noticed that there was a toll free number. After calling the number 10 times (I kept getting hung up on or going to the wrong Fannie Mae department) I finally talked to a real live person. The counselor informed me that the program was for military veterans who were injured in active service and have a Fannie Mae loan. This program is not for VA loans.

The counselor also informed that the program will suspend negative credit reporting and payment requirements for up to 6 months under this program. Not sure what happens when the time is up?  The problem with government backed/sponsored refinance programs is that they rarely seem to work out, and those that do work out a deal suffer a more than 50% foreclosure rate anyways.  This program offers no assurance that any sort of a deal can be reached, it simply places any delinquency on hold, and ultimately 6 months of breathing room offers little comfort in a market where the borrower is still very likely to be underwater and unable to pay after the forbearance ends. This maybe a benefit if the government enacts a new law that states that the banks must negotiate within 45 days (this is actually a possibility).

The payments during the term aren’t forgiven, merely delayed. The amount must be repaid, either as an extension to the end of the mortgage, a higher monthly payment, or a one time lump sum repayment.  Let’s be honest:  None of these options are particularly appealing when the house is worth less than you owe anyways.  The demographic of people who are likely to recover from financial hardship within 6 months by using this program seems very narrow.  Perhaps it would make more sense for Fannie to offer an option for those suffering military related hardship that guarantees a rate and principle cut instead?

Another issue most military veterans have VA loans not Fannie Mae backed loans. If Fannie Mae is sincere in trying to help families that have lost spouses in active duty military service, I think it’s reasonable to offer an alternative that actually keeps them in their home for the long term, not just a few extra months. Find a way to guarantee a lower rate through principle reduction, rate drops, and then see what the success rate is for people that are getting genuine relief.  It’s too late in the game to think that holding off payments for 6 months is going to fix their financial woes. 

Although on paper this may seem like a great program, the number of people who will actually qualify and benefit is a very small amount. This program will probably not help many military people at Ft. Leavenworth in Kansas City.

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Blog post written by the Dowell Taggart Team of RE/MAX Best Associates

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