In an effort to stop the tide of home foreclosures across the country, the regulator of Fannie Mae and Freddie Mac today announced a streamlined mortgage modification program designed to help seriously delinquent borrowers.
“Foreclosures hurt families, their neighbors, whole communities, and the overall housing market,” said James Lockhart, director of the Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie. “We need to stop this downward spiral.”
FHFA wants to do just that though this program, which is based on the Federal Insurance Deposit Corp.’s efforts with IndyMac Bank. After regulators seized IndyMac Bank earlier this year, they introduced a streamlined mortgage modification program in the hopes of preventing foreclosures on IndyMac home loans. The effort has been widely praised.
FHFA also hopes to establish an acceptable, manageable loan modification process for the mortgage industry, which has been struggling with the volume of foreclosures and the complexity of modifying terms after a loan has been securitized for purchase and sold. “I ask the private label mortgage-backed securities servicers and investors to rapidly adopt this program as the industry standard,” Lockhart said. “Not only will this streamlined program assist borrowers, but broad acceptance and effective implementation could stabilize communities and property values.”
Under the FHFA program, lenders and servicers will be able to revise original mortgage terms to make the loans more affordable to homeowners in financial trouble. Tactics may include changing the interest rate, loan maturity date, unpaid principal balance, or even shifting from an adjustable-rate mortgage to a fixed-rate product.
Whatever the strategy, though, lenders and servicers will have to ensure that borrowers with modified loan terms end up paying no more than 38 percent of their gross household monthly income for housing, including association dues and fees.
To be eligible, borrowers must be “seriously delinquent,” which means they must have missed at least three payments. They must live in the home and consider it their primary residence. And, they must not have filed for bankruptcy. “This streamlined program is meant to reach as many of these borrowers as possible to give them a chance to save their homes and begin restoring their credit,” Lockhart said.
The loan in question must also be held by Fannie Mae, Freddie Mac, or in a portfolio with participating investors. Borrowers will need to contact their servicers to find out whether their loan qualifies for the program. If so, they can move to the next step: providing gross household income, association dues and fees for their residence, and a statement explaining their financial hardship.
FHFA has even sweetened the pot for servicers to participate: they will receive $800 for each eligible loan that they modify.
As for estimates of the number of homeowners who will be helped by this program, FHFA said it didn’t know. But the figure could be considerable. While delinquency rates at Fannie and Freddie have been significantly lower than other lenders, the two firms own or guarantee 31 million mortgages, according to government figures.
Alison Rice is senior editor, online, at BUILDER magazine.