Redefaults Lead to Scaling Back of Fannie Program

Extremely high redefaults are forcing Fannie Mae to scale back its HomeSaver Advance program, which uses small personal loans to enable delinquent homeowners to catch up on their mortgage payments. A Federal Housing Finance Agency report shows 70% of borrowers redefaulted on their first mortgages in the first 3,300 advance transactions Fannie servicers completed in early 2008. "Fannie Mae is deemphasizing HomeSaver Advance and focusing attention on the Making Home Affordable modification program," an FHFA spokesperson said. Fannie Mae launched the advance program in February 2008 as a loss mitigation tool aimed at allowing the government-sponsored enterprise to avoid the cost of purchasing nonperforming mortgages out of securitized pools. The advances of up to $15,000 are supposed to help homeowners that have landed a new job or resolved other problems that got them into financial trouble so they can resume regular payments again. However, the FHFA report to Congress said the redefault rate "calls into question the program's assumption that borrowers have the capacity to make payments going forward." Fannie made 71,000 HomeSaver Advances in 2008 and another 20,400 advances in the first quarter with an average balance of $7,100. Fannie's first quarter financial report shows the mortgage giant had $516 million in HomeSaver Advances on its books as of March 31 after taking a $115 million charge-off. The quarterly report also notes the program's high redefault rate and says that the company is placing more emphasis on loan modifications.