Streamlined Loan Modification Program Unveiled

November 11, 2008 No Comments »

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The FHFA has announced details of a streamlined loan modification program similar to the one in place at Indymac Federal Bank, aimed at helping seriously delinquent borrowers.

The aptly named “Streamlined Modification Program” is a collaboration of the FHFA (Fannie and Freddie’s new regulator), FHA, Treasury, and Hope Now (along with its 27 servicer partners), but does not provide any direct government assistance.

To be considered for the program, borrowers must own and occupy the subject property as their primary residence, be 90 days or more behind on their mortgage payments, and must not have filed for bankruptcy protection.

They must also prove that they have experienced a “hardship or change in financial circumstances” and did not purposely default on the mortgage to receive assistance.

Eligible mortgages include Freddie Mac, Fannie Mae or portfolio loans with participating investors.

Under the program, borrowers will work with their servicers to establish an affordable monthly mortgage payment, determined as no more than 38 percent of the household’s monthly gross income (debt-to-income ratio).

The affordable payment will be achieved by reducing the mortgage rate on the loan, extending the life of the loan, or deferring payment on part of the principal, but no principal reductions will be permitted.

While no foreclosure moratorium has been put in place, borrowers who remain in contact with their servicers during the modification process may have any planned foreclosure sale suspended.

To encourage participation, servicers who take part will receive $800 for each loan modified through the program.

FHFA director James B. Lockhart noted that Fannie Mae and Freddie Mac own or guarantee nearly 31 million mortgages, representing almost 60 percent of all single-family mortgages in the U.S., but account for just 20 percent of serious delinquencies.

Private-label securities, those sliced and diced on Wall Street, account for 60 percent of serious delinquencies, despite their 20 percent share of the mortgage market.

The program is expected to be launched by December 15th.

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