Make us your home page

Fannie Mae, Freddie Mac to offer simpler, no-doc loan modifications

In a push to simplify loan modifications, many U.S. borrowers who become 90 days or more past due on mortgages backed by Freddie Mac and Fannie Mae will be offered lowered payments without having to prove hardship, the federal regulator of the home-finance giants said.

The streamlined modification program, to be put into effect in July, would reduce monthly payments by about 30 percent on average, officials said in announcing the program Wednesday.

Eligible borrowers would receive letters explaining the modification offer and specifying the reduced payment. If they made three monthly payments during a trial modification period, the new loan terms would become permanent — without them having to document their financial situations.

Fannie and Freddie own or guarantee more than half of all U.S. home loans. They pay mortgage customer service providers — which are mainly large banks — to collect payments, handle foreclosures, and work to modify loans for troubled borrowers.

Problems with servicers have included frequent complaints of lost or mishandled paperwork. And many troubled borrowers have not responded to servicers' efforts to reach them to discuss foreclosure alternatives.

The new program, announced by the Federal Housing Finance Agency, is designed to address those problems, the FHFA said. "This new option gives delinquent borrowers another path to avoid foreclosure," said FHFA's acting director, Edward J. DeMarco.

FHFA officials said they did not believe the new program would encourage a flood of so-called strategic defaults, in which borrowers who could afford to pay fall behind intentionally to get their loans modified. Fannie Mae and Freddie Mac have existing screening measures to prevent strategic defaulters from taking advantage of the program, the FHFA said.

DeMarco encouraged borrowers to apply for modification programs requiring documentation, saying they probably would wind up with lower payments than those generated by the streamlined modifications.

To qualify for the streamlined program, homeowners must be delinquent by at least 90 days but no more than 24 months. The loans must be first mortgages, at least 12 months old, and be for 80 percent or more of the property value. Loans that have been modified two or more times previously are not eligible.

The modifications would cut the interest to half a percentage point above the going rate for conventional loans, which currently would result in a 4 percent rate. The repayment term would be extended to 40 years. And in some cases, borrowers would not be required to pay interest on a portion of the loan balance.

The program does not alter DeMarco's controversial refusal to allow reductions in the principal owed — a policy that has caused many advocates and government officials to call for his ouster. DeMarco has maintained that reducing principal would end up costing taxpayers money and could encourage additional defaults.

Fannie Mae, Freddie Mac to offer simpler, no-doc loan modifications 03/27/13 [Last modified: Wednesday, March 27, 2013 10:43pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Los Angeles Times.

Join the discussion: Click to view comments, add yours

  1. Legalized medical marijuana signed into law by Rick Scott

    State Roundup

    TALLAHASSEE — Gov. Rick Scott on Friday signed into law a broader medical marijuana system for the state, following through on a promise he made earlier this month.

    Gov. Rick Scott signed legislation on Friday that legalizes medical marijuana in Florida.
  2. Line of moms welcome Once Upon A Child to Carrollwood


    CARROLLWOOD — Strollers of all shapes and sizes are lined up in front of the store, and inside, there are racks of children's clothing in every color of the rainbow.

    At Once Upon A Child, you often as many baby strollers outside as you find baby furniture and accessories. It recently opened this location in Carrollwood. Photo by Danielle Hauser
  3. Pastries N Chaat brings North India cuisine to North Tampa


    TAMPA — Pastries N Chaat, a new restaurant offering Indian street food, opened this week near the University of South Florida.

    The menu at Pastries N Chaat includes a large variety of Biriyani, an entree owners say is beloved by millions. Photo courtesy of Pastries N Chaat.
  4. 'Garbage juice' seen as threat to drinking water in Florida Panhandle county


    To Waste Management, the nation's largest handler of garbage, the liquid that winds up at the bottom of a landfill is called "leachate," and it can safely be disposed of in a well that's 4,200 feet deep.

    Three samples that were displayed by Jackson County NAACP President Ronstance Pittman at a public meeting on Waste Management's deep well injection proposal. The sample on the left is full of leachate from the Jackson County landfill, the stuff that would be injected into the well. The sample on the right shows leachate after it's been treated at a wastewater treatment plant. The one in the middle is tap water.
  5. Honda denies covering up dangers of Takata air bags


    With just a third of the defective Takata air bag inflators replaced nationwide, the corporate blame game of who will take responsibility — and pay — for the issue has shifted into another gear.

    Honda is denying covering up dangers of Takata air bags. | [Scott McIntyre, New York Times]