Among the virtues praised by King Solomon in his many proverbs is helpfulness: “He that is a friend loveth at all times, and a brother is proved in distress.” (Proverbs 17:17) In the aftermath of the destruction left by Hurricane Sandy along the East Coast this past weekend, there was plenty pf distress, but also some proving of support for homeowners faced with the loss or rebuilding of dwellings in several states. In order to help those devastated homeowners, mortgage giants Freddie Mac and Fannie Mae stepped in to help, with offers to suspend or reduce payments owed on mortgages for up to one year.
Freddie Mac, formally known as the Federal Home Loan Mortgage Association, is authorized by Congress to provide a secondary market for residential mortgages, working with a variety of lenders both small and large, all over the country to provide home loans for homeownership and investments alike. Freddie Mac and its sister agency, Fannie Mae, (the Federal National Mortgage Association), which also trades in loans, together hold about half the mortgages in the United States, either directly or through secondary lenders.
As of Fall 2012, that’s about 31 million loans. And along with a few other federal agencies, they backed nearly 90% of all new loans in 2012. Unless you’re purchasing with cash or using funds from a private lender, the chances are good that you’ll be working with one of these agencies in some way to secure a mortgage on residential property.
Because of the reach and scope of these two agencies, the decision to suspend loan payments to qualifying homeowners has immediate and far-reaching impact. What’s more, Freddie Mac has also asked its mortgage services to suspend foreclosure proceedings for at least a year on affected dwellings, which must be in a federally declared disaster area. Additional help includes not reporting delinquencies to credit reporting agencies.
Fannie Mae has also taken steps to aid disaster-struck homeowners, with a plan for mortgage services to help struggling homeowners by temporarily reducing or waiving mortgage payments for an unspecified length of time, allowing them time to recover and rebuild. The actions taken by these two superagencies echo the announcements of similar help offered to New Orleans homeowners in the wake of Hurricane Katrina, a type of assistance not available to property owners who own the dwellings fee and clear.
This kind of assistance is offered to property owners regardless of their status, investor or homeowner, and along with landlord’s insurance that can cover loss of income from the properties in the event of this kind of disaster, Freddie Mac’s suspension of mortgage payments on eligible applications means that income property investors who own single family and multiplex homes are protected from losses on the investment while rebuilding and installing new tenants.
Home equity is vulnerable. Those who own their homes free and clear are ineligible for this kind of break and will likely lose money. But as Jason Hartman says, a fixed rate mortgage that can be refinanced is an investor’s best friend, offering protection in the event of a major disaster and sparing an investor’s own money for other purposes. Working with Freddie Mac and his sister Fannie Mae, as well as their secondary mortgage services, investors can ensure that their properties are viable and capable of producing a return for the life of the investment, even when nature intervenes to put the virtue of helpfulness to the test. (Top image: Flickr/AlanaSise)
The Solomon Success Team