In the effort to work out troubled home mortgages, lenders, servicers, and investors have encountered various problems with the available solutions.

Loan modifications, for instance, require the servicer to get extensive information from the borrower and have also been restricted by investor requirements. Though Fannie Mae and Freddie Mac can buy the loans they guarantee out of securitized pools for modification, such purchases have produced big paper losses for the government-sponsored enterprises.

Repayment plans have presented different problems. The servicer must advance principal and interest to investors while the borrower gets caught up on arrears. And often the borrowers do not catch up, so the servicer ends up foreclosing — or putting the borrower on another plan.

A Fannie Mae program unveiled last week, in which the GSE makes unsecured personal loans of up to $15,000 to pay off a delinquent mortgage balance, tries to address the other approaches’ shortcomings. Unlike modifications, HomeSaver Advance does not require Fannie to buy loans out of pools. And for servicers swamped with requests for relief, the program retains an advantage of repayment plans — it can be executed quickly — without the costs of making the advances or renewing plans.

HomeSaver Advance “is operationally very easy,” Bob Caruso, a national servicing executive at Bank of America Corp., which has been using the program for three weeks, said Tuesday. Servicers can cure the loan immediately and move on to the next borrower, he said. “It’s faster and quicker — one call and you’re done.”

It remains to be seen how widespread the program’s benefits will be. The plan is intended only for borrowers who are current on their mortgage payments but in arrears for some amount because of a one-time event such as a temporary job loss, divorce, or medical problem. “This is for the customer who can afford their mortgage payment but can’t catch up,” Mr. Caruso said. “It doesn’t help a customer who is struggling to make their payments.”

Fannie would not say how many borrowers it thinks will be eligible. But Kevin Kanouff, the president of Clayton Holdings Inc.’s fixed-income services unit, said roughly 30% of the subprime loans that went delinquent in the last 12 months did so because of a life event (though not all these borrowers have been able to resume making monthly payments).

Moreover, a chief criticism of repayment plans — that they mask serious delinquencies — could apply even more to HomeSaver Advance. Loans on a repayment plan remain classified as delinquent but do not progress from one “bucket” (30 days, 60 days, and so on) to the next. HomeSaver Advance removes a mortgage from delinquency altogether, with debt that is no longer visible on the mortgage balance.

“For the servicer, it … lowers their delinquent pool, so their numbers look better,” Mr. Kanouff said. “The worst-case scenario for the investor is that these loans go delinquent again.”

“There has been a lot of criticism in the industry about repayment plans and modifications that make customers current,” Mr. Caruso acknowledged. However, he said, “that’s what most customers are looking for.” In B of A’s foreclosure-prevention efforts, he said, “our biggest challenge is getting the customer to talk to us, and so far we’re surprised at how quickly this has caught on.” (His company would become the top servicer once its deal for Countrywide Financial Corp. closes, which is expected to be in the third quarter.)

In HomeSaver Advance the borrower never receives funds from Fannie. The unsecured loan is applied directly to the past-due amount, making the mortgage current. The borrower does not have to make payments on the unsecured loan for the first six months; the 15-year loan has a fixed rate of 5%.

The program will become available to all servicers in mid-April.

Brad German, a spokesman for Freddie Mac, said that while the GSE does not currently finance unsecured loans, it is "exploring the applicability of programs like HomeSaver" to its portfolio and "their potential to benefit struggling homeowners and shareholders alike." 

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