Where Fannie and Freddie’s Loan Mod Plan Falls Short
Fannie Mae and Freddie Mac’s regulator announced Tuesday that the housing finance giants will implement a sweeping plan to prevent distressed borrowers from losing their homes to foreclosure. The new program, which goes live December 15, aims to speed up the loan modification process by using a more-streamlined protocol.
Here are the details:
1. The new plan is designed to keep struggling borrowers in their homes by reducing their monthly payments to no more than 38 percent of the borrower’s gross monthly household income.
2. This could be accomplished by reducing the interest rate, extending the length of the loan, or lowering the principal of the loan.
3. Borrowers who are 90 or more days late on their mortgage and live in their property are eligible to participate. The program only applies to single-family homes, and you cannot participate if you are in bankruptcy.
(See full fact sheet here.)
4. Loan servicers will be contacting eligible barrowers to participate. But you can also call your servicer to see if you are eligible.
“It’s definitely a step forward,” says Howard Glaser, a mortgage industry consultant and a U.S. Department of Housing and Urban Development official during the Clinton administration. “They do have several hundred thousand eligible loans, and Fannie and Freddie are likely to be better than the private industry has been in applying modifications across the board because they don’t have the shareholder issue to deal with.”
But there are limiting factors, Glaser says. “Fannie and Freddie’s share of high risk mortgages is very small compared to the market as a whole. And as you get into 2005 and 2006, sixty five percent the mortgages were done in securitizations outside Fannie and Freddie--and that’s where most of the trouble is.”
Indeed, James Lockhart--Fannie and Freddie’s regulator--said in a speech announcing the program that “private label securities represent less than 20% of the mortgages but 60% of the serious delinquencies.”
And that’s where the plan falls short, says Susan Wachter, a professor of real estate at the University of Pennsylvania's Wharton School of Business. The program does no apply to loans in most private label mortgage-backed securities. Instead, Lockhart is asking investors and servicers of such securities to do so voluntarily. “I ask the private label MBS [mortgage-backed securities] servicers and investors to rapidly adopt this program as the industry standard,” Lockhart said.
But simply asking them to do so is not enough, Wachter says. The private sector has demonstrated that it is “unwilling or unable” to voluntary modify loans in significant numbers since the onset of the crisis, she says. “There’s hope here, but its moral suasion,” Wachter says. “And we don’t have a lot of time to see if moral suasion works.”
Tags: Wall Street | Fannie Mae | Freddie Mac
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Reader Comments
I was misinformed
Back on Oct 2008 we were falling behind on our mortgage payments and requested from Countrywide a loan modification (HOPE program). I had an ARM loan for 40 years and I had options to pay minimum,interest only, interest & principal.
However, due to the fact that my husband had a big cut in his pay, we were paying only the minium payments and my principal went up $20,000 every year. When we called Countrywide in Dec 2008 to get a loan modification it took a while for them to approve a modification. On Feb 2009, finally a loan modification was approved and the papers mailed to me to sign were vary vague. I called Countrywide the home retention team many times and also the HOPE team and they said the modification was to make my loan a fixed interest rate at 4% for 40 years. I couldn't believe it and I called back several times to confirm this. The home retention team always had a difficult time interpreting my loan and after waiting about 15 minutes they confirmed it again. Yes, 4% interest only for 40 years. It sounded ackward to me, but since I wrote down all their names I assumed they knew what they were talking about. My husband and I signed the loan modification. They added the 3 months I hadn't paid to my principal. For the months of March,April & May my payments were fixed at 4%. However, this month they raised the interest rate and the monthly payment due. I called CountryWide(now Bank of America) and everyone in the retention team had no clue about my loan. It's a BIG mess and they told me i was misinformed and that I cannot do anything about my loan, that I have to wait a year to modify it again. I am very angry because they are all a bunch of liers and rushed my husband and myself into signing the modification which did nothing for us. We still have the same ARM loan for 40years and every month our payments change. What kind of a modification was that?!!! I still have the same loan. All they did for us was to secure the amount we were behind and added it to our principal. I regret not using an attorney and right now I need help and want to involve one. I feel we were misled and lied to. Countrywide really commited fraud!
FORECLOSURE DEFENSE!!!!!!!!!!
I gave my attorney the foreclosure documents four months ago, to this date, he has not even seen them, and I really don't know what to do. the loan is with Wachovia Bank and they don't care about helping you or even answering any questions. When you call they put you on hold and they transfer you to about three or four different people and you must tell them the same information about you over and over and over again before a soul can said something in other words nobody is there to help you. What's worst if you by any chance did take a name and number of the agent who spoke with you and call back the next day, he's gone, nobody knows who that is. It's impossible. But you know, what surprises me that two or three years ago, they will come to my office and solicit my business and offered me all the mortgages that I wanted (of course, I was 80% LTV not 80/20 and self employed) they checked everything. And now that Wellsfargo took over, who knows what's going to happen. I just know that foreclosures are caused by the lenders/banks because they don't want to help, even if you with your good intention don't want to go thru such a dramatic event. WHY WOULD BANK/LENDER PREFERS TO DO A FORECLOSURE AND SELL IT TO INVESTORS FOR AS LITTLE AS 35CENTS ON THE DOLLAR WHEN THEY CAN NEGOTIATE WITH THE CURRENT OWNER AND LEAVE HIM IN HIS/HOME? DON'T UNDERSTAND AND NEVER WILL. CAN SOMEBODY EXPLAIN TO ME. THANK YOU
modification, trial plan
I've been waiting 8 months for a mod. Wama/Chase finally sent me a trial plan period, for me to pay a smaller payment for 3 months. The want it to start on or befor May 1st, They did'nt fedex it to me until May 9th. It does'nt give me the terms or payment of what will happen after the 3 months is over. I dont know if I should sign it, because, I still have to pay my second, because I had a 80/20 loan. And I need a more permanent agreement. If it will be around the same after the 3 months thats great, but their not telling me what happens after. I don't know what to do. I dont know if this is a trick for the lender to get more money from me, and they will put the payment back high after the 3 months. I need to know because my my second is also a factor in this whole matter. And should'nt have started on June 1st. Not before they sent me the paperwork. Everytime I call I get no help they give me the run around. I can never talk to anyone. What should I do, I have to turn in papers by May 21.
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