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GSEs Extend Forbearance to Borrowers with Chinese Drywall Problems

The damage caused by toxic drywall imported from China has left far too many borrowers in a situation of financial hardship, with replacement costs eating away at their funds to the point that some are unable to make their mortgage payments.

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Government-backed mortgage giants Fannie Mae and Freddie Mac announced Friday that they will grant forbearances to borrowers experiencing problems as a result of the defective wallboard.

Investigations have concluded that the defective, sulfur-emitting Chinese wallboard can cause health problems and corrodes wiring, plumbing, gas pipes, fire alarms, appliances, and some electronics.

Most of the reported problems with the substandard drywall have come out of Alabama, Florida, Louisiana, Mississippi, and Virginia, from homes that were built at the height of the housing boom and those that required structural repairs during the 2005 hurricane season.

""Fannie Mae is instituting"":http://www.fanniemae.com/newsreleases/2010/5066.jhtml?p=Media&s=News+Releases a new, national policy that provides relief for homeowners who have problem drywall in their homes. Under the company's ""Unusual Hardships"" policy, the GSE will direct its servicers to provide qualifying borrowers up to six months of forbearance on their mortgage loan payments. The company is also instructing servicers to minimize the impact such assistance might have on borrowers' credit, as long as they are current on their loans and complying with the terms of the forbearance.

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""This relief is intended to help borrowers who need payment flexibility as they take steps to mitigate problems with problem drywall,"" said Terry Edwards, EVP at Fannie Mae. ""The issue potentially affects thousands of homeowners in a number of states, and we want to support those who are responsibly trying to honor their mortgage obligation in good faith while correcting the problem and protecting the health and safety of their families.""

The new policy, though, increases the workload for servicers, many of whom are already strapped from dealing with rising delinquencies and foreclosures. Fannie Mae servicers will be required to document and evaluate each borrower's circumstances on a case-by-case basis, and require a property inspection to confirm the existence of the problem drywall. When a servicer determines that the problem drywall is affecting the borrower's ability to continue making mortgage payments, then the servicer may offer forbearance terms, initially for a maximum of six months. Extended terms require Fannie Mae approval.

""Freddie Mac says its servicers"":http://www.freddiemac.com/news/archives/singlefamily/2010/20100618_drywall.html may grant forbearances on a case-by-case basis to borrowers with Freddie Mac-owned mortgages secured by homes that contain problem drywall.

""Freddie Mac's goal is to help borrowers cope with these unusual drywall problems by instructing our servicers to give them the full measure of relief available under our policies,"" said Yvette Gilmore, Freddie Mac's VP of loss mitigation. ""This will help more borrowers shoulder the unexpected cost of remediation and continue to succeed as long-term homeowners.""

Freddie Mac's forbearance policies give servicers the discretion to suspend a borrower's mortgage payments for up to three months or reduce payments for up to six months. Servicers may recommend forbearance for up to twelve months, based on the borrower's individual circumstances.

Under Freddie Mac's requirements servicers must not accrue or collect late charges from the borrower during a short-term forbearance or any subsequent repayment plan period, as long as the borrower is paying according to the forbearance agreement.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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