News Column

US Easing Mortgage Modifications on Loans

Mar 26 2013 10:00PM

Mary Ellen Podmolik

The overseer of Fannie Mae and Freddie Mac is directing mortgage loan servicers to this summer begin offering a simplified mortgage modification to some struggling borrowers whose loans are backed by those two enterprises.

Beginning July 1, the Federal Housing Finance Agency said loan servicers will be required to reach out to eligible seriously delinquent borrowers and offer them a three-month trial loan modification without the borrower providing any financial documents or hardship letters. The payment terms could be adjusted downward if the homeowner documents their income and financial difficulty.

The effort announced Wednesday, while different than the Obama administration's Home Affordable Modification Program, is similar to a short-lived effort under HAMP that offered no-doc trial modifications. That effort, designed to get more struggling homeowners into the program quicker, also led to more mortgage redefaults and for a time, marred HAMP program results.

The streamlined program will also does little to help borrowers who are not only behind on their payments but whose mortgages are far underwater, meaning they owe more on the loans than the value of the properties.

The FHFA and Edward DeMarco, its acting director, have long been under fire for refusing to allow principal writedowns of Fannie Mae- and Freddie Mac-backed loans to make them more affordable. Earlier this month, nine state attorneys general, including Illinois Attorney General Lisa Madigan, wrote a letter calling for DeMarco to be replaced.

Under the program, borrowers with mortgages that are either owned or guaranteed by Fannie or Freddie and are at least 90 but no more than 24 months behind on their monthly payments may be considered eligible for a streamlined trial modification. They will be contacted by their loan servicers and offered a specific dollar amount to pay for three months and if they pay that successfully, they can receive a permanent modification, based on a fixed interest rate, for 40 years. Providing financial information could lower that initial trial payment amount, the FHFA said.

The program will apply to first-lien mortgages on primary homes, second homes and investment properties that are at least one year old and have a loan-to-value ratio of 80 percent or higher. Loans that have already been modified at least two times are excluded from the program.

"We will still encourage such borrowers to provide documentation to support other modification options that would likely result in additional borrower savings," DeMarco said in a statement.

However, the FHFA noted Wednesday that homeowners may be able to secure more affordable payment terms under HAMP.

The program will end Aug. 1, 2015.



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