Fannie Mae and Freddie Mac Loan Modification

Fannie Mae and Freddie Mac has made a press releases stating they were establishing framework for loans in their portfolio to be reviewed for a loan modification. When this info was released, I was left scratching my head... I'm still pondering why the people who need help the most help are excluded from the mortgage Titan's immediate guidelines? Lets take a look at a few of Fannie and Freddie's guidelines for a Loan modifcation package:

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.

(This helps the homeowner and gives the modifying attorney a good guideline to work within. The guideline for a modified proposal for a new interest rate is 200bps above the current 10 year T- Bill average. If the client does not have enough disposable income they don't qualify. I have no problem with this guideline, it makes it clear who qualifies and who does not)

2. Borrowers who are in bankruptcy are not eligable to participate. The home must be a single family owner occupied home. All others are not considered in current guidelines

(This is a catch 22. If the borrower is in Bankruptcy this is typically because of a "life event" that has procluded the debtor from being able to maintain regular monthly payment. A Bankruptcy debtor maybe forced to have a post petition modification hearing, or have a voluntary dismissal. The idea of dismissing a bankruptcy to save your home is very much conflicting. If the debtor misses payments, and the mortgage company moves to lift the debtors stay, they suddenly become eligable? It does not seem right. The option of a court intervention of a post petition modification is another cost to the debtor. The post petiton modification often times is a disorganized process for the lender. Most of the Bankruptcy department has no idea what loss mitagation is doing and vice versa. The most puzzling part is the single family home part. Lenders have modified 2 family dwellings but the guideline reads as single family home.


3. Fannie and Freedie are the ones that established this guideline.

(Fannie and Freddie are now goverment run agencies. They do not have investors to pascify. Fannie and Freddie have never been know the lend money to "subprime" borrowers. Fannie and Freddie never really wrote risky loans. The loans in Fannie Mae and Freddie Macs portfolio defaults in comparison to the private firms defaults is negligable in comparison. Between 2005-2006 65% of loan were securitized outside of Fannie Mae and Freddie Mac ( HUD) "private label securities represent less than 20% of the mortgages but 60% of the serious delinquencies." This is an obvious problem that needs to be addressed.

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About the Author

Shawn M Peck

Shawn Peck is an active approved loan modification specialist. Mr. Peck has spent 10 years working with Chapter 13 debtors as a home loan...