Fannie Mae and Freddie Mac, the two large government-sponsored housing companies, rolled out a plan today that would ease requirements for homeowners seeking to modify their mortgage payments, allowing many to remain in their homes and avoid foreclosure.
The program would allow homeowners who are behind on their mortgages by at least 90 days to seek a modification without having to document financial hardship, as they have in the past. That requirement often made it harder for homeowners to get a loan modification that would help them get current on their loans, but the new rules would make it easier to lower their monthly payments, the Los Angeles Times reports:
The streamlined modification program, to be put into effect in July, would reduce monthly payments by about 30% 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.
The two entities and their regulator, the Federal Housing Finance Agency, have faced criticism for not doing more to help homeowners, especially amid the shortcomings of the Obama administration’s signature housing efforts, the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP). Modification efforts were hurt by banks that often didn’t process those documents as quickly as they processed foreclosures. That has led to wrongful foreclosures and claims of fraud and false documentation, both of which were major elements of the mortgage settlement the federal government reached with large banks last year.
The housing market has improved in recent months, helping the overall economic recovery. Millions of Americans are still underwater on their mortgages or facing the threat of foreclosure. Because Fannie and Freddie collectively back roughly half of American mortgages, this change will help address that problem.