Fannie Mae and Freddie Mac are two of the largest financial institutions in the world. They make millions of dollars by purchasing home loans from lenders, bundling several similar loans, and selling those bundles to major investors. When the housing market fell, the two institutions were placed under federal control, which allowed the government to become the de facto leader of the financial industry. Since any loan that is owned by Fannie Mae or Freddie Mac becomes, in effect, the government’s loan, the federal government gets to call the shots on whether that loan will be modified. This fact is at the center of President Obama’s Making Home Affordable Plan. Any lender with a loan controlled by Fannie Mae or Freddie Mac must participate in the Making Home Affordable Plan, and therefore must follow federally issued guidelines.
There are some lenders, however, that do not take part in federal assistance programs like Making Home Affordable because their loans are not owned by Fannie Mae or Freddie Mac. Participation in federal assistance programs is optional for these lenders. It is still possible, however, to be granted approval for a loan modification if your loan is not owned by Fannie or Freddie.
Besides federal assistance options, lenders also provide borrowers with in house loan modification and foreclosure avoidance options. These are programs and options established solely by the lender, without the assistance or overview of the federal government. These programs allow the lenders to hold absolute discretion when deciding who should be approved, assuming that the discretion remains within the law. Just because a program is not federally controlled it does not mean that lenders can discriminate against borrowers for their race, religion, orientation, etc. Lenders can, however, discriminate against financial history, employment status, etc. These are factors that are used to determine the level of risk that the lender would undertake by approving a loan modification, and if the risk is too high for the lender to feel comfortable, they can deny their borrower a loan modification.
Foreclosure law experts agree that a borrower should never pursue a loan modification of any kind on their own. Lenders are in the business of making money, and even though a loan modification is more profitable for the lender than a foreclosure, the lender will attempt to do everything they can to issue a loan modification with as few changes to the original loan as possible. The solo borrower might think that they are getting a good deal, when in actuality the deal they get can is nowhere near as good as the ones being issued to borrower represented by attorneys.
Getting a loan modification if your loan is not owned by Fannie or Freddie is no more difficult than getting a loan modification through federal assistance. Borrowers who pursue either option most often experience high levels of frustration and a lack of customer service from their lenders (even loan modifications prescribed by the government are handled by the individual lenders). Besides, the federal government recently came under fire because the number of loans that have been modified through federal programs are so low compared to the number of loans facing foreclosure. No matter where the borrower goes, they will no doubt be met with some kind of resistance and red tape. Hiring an attorney, for either option, is always the best move because they will be able to cut through the red tape more rapidly than a borrower representing themselves.