Fannie Mae offers loans to struggling homeowners

By Lynn Adler

NEW ORLEANS (Reuters) - Fannie Mae is offering loans to help homeowners who have fallen behind on payments avoid permanent changes in their mortgage terms to reduce the finance company's credit losses.

The largest U.S. home funding company is providing these advances through their loan servicers, who will receive a $600 fee to help remedy mortgages to borrowers who can otherwise keep up payments once they catch up and become current.

The offering is part of a broad array of incentives to mortgage servicers to mitigate the losses from home loan, more of which are heading into foreclosure as home prices fall.

These loans and incentives are "meant to help borrowers stay in their homes and help reduce losses in the industry, and help preserve home values nationwide," Brent Peterson, vice president for servicing management at Fannie Mae, told Reuters here at the Mortgage Bankers Association national servicing conference.

These efforts come at a cost to Fannie Mae (FNM.N), which earlier on Wednesday reported a surprisingly large $3.6 billion quarterly loss as defaults and foreclosures surged.

Loan relief costs "come out of our bottom line," said Peterson. "Our anticipation and our believe is that it will reduce overall credit losses for the company. I'm spending money now to save money in credit losses .. it's a big investment but we think it will be worth it."

Fannie Mae Chairman Daniel Mudd spoke of the "HomeSaver Advance" initiative in Congressional testimony about two weeks ago, and the first advances were closed last week, Peterson said,

Mortgage servicers typically collect payments from homeowners and pass them along to investors. They are increasingly being called upon to modify the terms of the loans as borrowers struggle with rising costs and home values that have dropped below the mortgage amount.

The HomeSaver Advance can be made on mortgages that are bought or securitized by Fannie Mae. The borrower must be late with an amount worth at least two full payments of principal, interest, taxes and insurance. At least six monthly payments need to have been made since the loan closed.

Borrowers can get up to $15,000 or 15 percent of the original loan balance. A review will occur if more is requested.

"It's another effort, another tool to be able to reach out to the borrowers and to have them consider," said Peterson. "It's another tool for our servicers to be able to reach out to borrowers."

The advance is payable over 15 years at a 5 percent fixed rate without any payments or interest accrued for the first six months.