Fannie says you may skip a payment if you'll spend it on christmas?
October 31, 2002 11:16 p.m. EST
'PaymentPower' of Fannie
Is Drawing Some Concern
By JULIE HAVIV
DOW JONES NEWSWIRES
NEW YORK -- Fannie Mae is so confident in the ability of certain homeowners to pay off their mortgages that it is allowing them to skip some payments. But some question the new program's timing amid an environment of concerns over delinquencies and foreclosures.
Fannie Mae's new mortgage product, "PaymentPower" or "Skip a Payment," is available on a limited pilot basis and allows borrowers who receive an "approve/eligible" recommendation through Desktop Underwriter, Fannie Mae's automated underwriting system, to defer their regularly scheduled monthly mortgage payment (i.e. principal, interest, taxes and insurance).
The funds can be used toward discretionary uses, such as tuition, investments, or unexpected financial emergencies, the agency said.
The PaymentPower program started two months ago, and 10 lenders are currently part of it. Paul Pavlishin, Fannie Mae's director of single-family business product development and product manager for PaymentPower, says the pilot program is scheduled to last nine to 12 months, during which time Fannie Mae will gauge consumer interest, and after that the company will decide whether to continue or expand the program.
The timing of the new product, however, puzzles some mortgage-market participants.
More U.S. households were behind on their mortgage payments in the second quarter of this year than in the previous quarter, the Mortgage Bankers Association of America said in a report last month. And foreclosures rose to all-time highs during the quarter, although delinquencies weren't high by historical standards.
But Anne Canfield, executive director for the Consumer Mortgage Coalition, a trade association that includes members such as Wells Fargo and GE Capital Mortgage, says that is exactly why the timing of the program is good. "The program's flexibility may actually help reduce defaults and foreclosures," she said. "[Fannie Mae's] innovative product actually helps consumers stay in their homes."
Lenders also approve of Fannie Mae's new product and see it as benefiting people with irregular income streams or relieving situations in which people are temporarily cash-strapped.
In the program, deferred payments are capitalized in the outstanding unpaid principal and reamortized over the remaining term of the mortgage.
Borrowers with the PaymentPower mortgage can decide for themselves when to use the skip option and may elect to do so up to two times per 12-month period, with a maximum of 10 skipped payments over the life of the loan. Prior to the first skip, the borrower must make three on-time monthly payments and must wait three months after the last skip in a cycle before exercising a skip in the next cycle.
Fannie Mae's mortgage cohort, Freddie Mac, doesn't have a "skip a payment" type product and says it has no plans for such a product in the pipeline.
"We try not to completely close the door on any mortgage product that our lender customers might want to sell to us," says Douglas Robinson, director of media relations at Freddie Mac. "But skip-payment mortgage is not on the top of our mortgage product development list."
Write to Julie Haviv at julie.haviv@dowjones.com1
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