Thursday, December 18, 2008
A little help but not enough. Streamline Modification Program.
Fannie Mae today said that the Streamlined Modification Program (SMP) announced by the Federal Housing Finance Agency (FHFA) in November is now available to Fannie Mae servicers and borrowers as an option to help prevent foreclosures. Fannie Mae on December 12, 2008, provided information and guidelines to its servicers regarding the implementation of the SMP.
The SMP is designed to be a streamlined process for modifying the loans of
a large number of borrowers who are delinquent in their mortgage payment and may be able to avoid a foreclosure through the program. As FHFA has indicated, SMP was intended to help set standards in the mortgage servicing industry for conducting loan modification programs on a large scale as a foreclosure prevention measure.
Fannie Mae has been working with FHFA and 27 lenders and servicers in the
HOPE NOW alliance to implement the SMP. Under the program, borrowers who meet
certain eligibility criteria and demonstrate financial hardship may be eligible for a loan modification that reduces their monthly principal and interest payment.
The streamlined process allows a borrower to sign a single document at the outset of the workout process that both establishes a new monthly payment during a three-month trial period, and sets forth the modification terms that will take effect if the borrower makes the new payments during the trial period. The program is available to borrowers who have missed at least three monthly payments on their existing mortgages.
"By bringing the collective efforts of FHFA, Treasury, HOPE NOW, Fannie
Mae, Freddie Mac and other mortgage industry participants together through the
SMP to confront the foreclosure challenge, we'll be able to help more families
across America stay in their homes," said Herb Allison, Fannie Mae president
and CEO. "Along with other recently announced initiatives by Fannie Mae to
reach and help financially troubled borrowers earlier, including our Early
Workout program, the SMP is a critical component of our company's foreclosure
prevention efforts. These efforts are helping more than 10,000 delinquent
borrowers every month get back on track."
Through the SMP, servicers may change the terms of a loan to reduce a
borrower's first lien monthly mortgage payment, including taxes, insurance and
homeowners association payments, to an amount equal to 38 percent of gross
monthly income. The changes in terms may include one or more of the following:
-- Adding the accrued interest, escrow advances and costs to the principal
balance of the loan, if allowed by state law;
-- Extending the length of the mortgage loan as appropriate;
-- Reducing the mortgage loan interest rate in increments of 0.125 percent
to an interest rate that is not less than 3 percent. If the new rate is
set below the market interest rate, after five years it will step up in
annual increments to either the original loan interest rate or the
market interest rate at the time of the modification, whichever is
-- Forbearing on a portion of the principal, which will require the
borrower to make a balloon payment when the loan matures, is paid off,
or is refinanced.
Highlights of the SMP's eligibility requirements communicated to servicers
-- Conforming conventional and jumbo conforming mortgage loans originated
on or before January 1, 2008;
-- Borrowers who are at least three or more payments past due and are not
currently in bankruptcy;
-- Only one-unit, owner-occupied, primary residences; and
-- Current mark-to-market loan-to-value ratio of 90 percent or more.
Servicers will be sending modification solicitation letters beginning this
month to thousands of borrowers believed to be eligible for the program. It is
critical that eligible borrowers respond to these letters and reach out to
their servicers to determine if they can receive SMP assistance. Also,
borrowers who don't receive a letter are encouraged to contact their servicer
to see if they may be eligible for SMP help. Fannie Mae will be working with
servicers to monitor and improve implementation of the program as necessary.
Fannie Mae exists to expand affordable housing and bring global capital to
local communities in order to serve the U.S. housing market. Fannie Mae has a
federal charter and operates in America's secondary mortgage market to enhance
the liquidity of the mortgage market by providing funds to mortgage bankers
and other lenders so that they may lend to home buyers. In 2008, we mark our
70th year of service to America's housing market. Our job is to help those who