Fannie, Freddie Announce New Loan Modification Rules

Starting July 1, 2013, Fannie Mae and Freddie Mac will simplify mortgage modification rules for borrowers who are delinquent on their mortgages, according to the companies’ federal regulator.

The Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie, announced last week that it will offer new, simplified loan modifications to help troubled borrowers avoid foreclosure and stay in their homes. The streamlined mortgage modification program doesn’t require troubled borrowers to prove hardship. The new modifications, however, does not include principal reduction. The goal is to reduce monthly payments.

In the past, troubled borrowers had to provide documentation that they had a financial hardship.

“The streamlined modification initiative adds to the suite of home retention tools offered by Fannie Mae and Freddie Mac,” said  FHFA Acting Director Edward J. DeMarco in a prepared statement. “This new option gives delinquent borrowers another path to  avoid foreclosure. We will still encourage such borrowers to provide documentation to support other modification options that would likely result in additional borrower savings.”

The new program will end August 2015,  and is available only for loans that are owned or guaranteed by Fannie or Freddie, which guarantee about half of all outstanding U.S. loans. The new modification program is available to homeowners who are at least 90 days to 24 months  delinquent, and have a first-lien mortgage that is at least 12 months old with  a loan-to-value ratio equal to or greater than 80 percent. Delinquent  borrowers with second homes or investment properties can also qualify for the initiative.

Loan modifications have fallen as the number of homeowners avoiding foreclosure has dropped. Last year, Fannie and Freddie provided nearly 233,000 loan modifications, down 28 percent from the 322,100 modifications in 2011, and 60 percent from 575,000 modifications in 2010. Since they were in conservatorship  by the federal government in 2008, Fannie and Freddie have completed 1.3 million loan modifications and 410,000 short sales, in which borrowers sell their homes for less than the amount owed, according to a FHFA report.

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