Distressed mortgage borrowers will get a new lifeline from Fannie Mae and Freddie Mac after a critical foreclosure-prevention program expires this month.
The mortgage-finance giants on Wednesday outlined a plan to replace the Home Affordable Modification Program, one of the first responses to the financial crisis by President Barack Obama’s administration.
The new program aims to cut troubled borrowers’ mortgage payments by 20 percent, through a combination of tools such as interest-rate reductions, extensions of loan terms and mortgage principal forbearance. The program, called “Flex Modification,” begins in October 2017.
Fannie Mae and Freddie Mac, which are regulated by the Federal Housing Finance Agency, don’t make loans. They buy them from lenders, wrap them into securities and make guarantees to investors in case of default. Their role in guaranteeing the repayment of mortgages gives them ultimate authority in setting the terms for modifications of borrowers’ loans.
The program closes another chapter on HAMP, which launched in 2009 and struggled in its early days to meet the ambitious goals of the Obama administration to help as many as 4 million borrowers avoid foreclosure.
Fannie and Freddie’s new program, which is similar to a September proposal from the Mortgage Bankers Association, will let borrowers get a streamlined modification with no required documentation after being 90 days late on payments. When the MBA made its proposal, lenders said such a move would ensure borrowers get help quickly, which they say is key to avoiding foreclosure.
Fannie and Freddie said a high percentage of borrowers who are at least 60 days late would be eligible.