U.S. expands program to help struggling borrowers simplify loans

WASHINGTON, March 27 Wed Mar 27, 2013 9:59am EDT

WASHINGTON, March 27 (Reuters) - The top U.S. housing regulator on Wednesday said it will simplify an existing anti-foreclosure program to make it easier for struggling homeowners to lower monthly payments.

The mortgage modification program is open to borrowers with loans backed by Fannie Mae and Freddie Mac. While the two government-controlled firms finance about two-thirds of all new U.S. mortgages, they represent a far lower portion of delinquent mortgages.

The Federal Housing Finance Agency said the companies will no longer require documents on personal finances or paper work that records financial hardship under the program in which they target loans that are at least 90 days delinquent and have high loan-to-income ratios.

"This new option gives delinquent borrowers another path to avoid foreclosure," said FHFA Acting Director Edward DeMarco in a statement. "We will still encourage such borrowers to provide documentation to support other modification options that would likely result in additional borrower savings."

No estimate of how many homeowners would be able to qualify was immediately provided by officials. Fannie Mae and Freddie Mac have completed 1.3 million loan modifications since they were seized by the government in 2008, according to the FHFA.

Fannie Mae and Freddie Mac are paying mortgage servicers to process each modification. The companies will absorb the losses on loans or mortgage securities they own.

Officials said the initiative aims to encourage servicers to resolve delinquencies earlier, help keep more borrowers in their homes, and minimize losses to Fannie Mae and Freddie Mac which rely on taxpayer support.

Under the streamlined modification program, mortgage servicers work with borrowers to reduce monthly payments, by reducing interest rates, extending the length of the loan term, or providing principal forbearance, which postpones the repayment of a portion of a loan balance, but doesn't permanently reduce it, for certain underwater borrowers.

Homeowners who qualify must go through a trial period. Their loan modifications won't become final until they have made three consecutive payments.

The new modification initiative takes effect on July 1 and will last until the program ends on August 1, 2015.

The Obama administration has placed pressure on the regulator to be flexible with struggling homeowners. Fannie Mae and Freddie Mac are blocked by their regulator from implementing principal forgiveness, arguing that doing so is too costly relative to other types of modifications.

DeMarco, resisting more-aggressive housing rescues, has acknowledged that trimming balances for underwater homeowners could save Fannie Mae and Freddie Mac money. However, those savings are not enough to overcome other hidden costs of such a program. This includes the possibility homeowners who are current on payments would chose to default strategically to qualify for relief.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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