FANNIE MAE STREAMLINED MODIFICATION PROGRAM ANNOUNCED
Fannie Mae announced a series of actions designed to help borrowers and loan servicers address potential mortgage problems and prevent unnecessary home foreclosures among the more than 18 million single-family loans owned or guaranteed by Fannie Mae. The latest actions are meant to reach borrowers earlier with foreclosure prevention options, and include new servicer guidance;
an early workout program; longer forbearance and repayment plan periods; and new and amended mortgage-backed security trust documents.
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Fannie Mae Provides New Servicer Flexibility to Help Borrowers Avoid Foreclosure
WASHINGTON, DC — Fannie Mae (FNM/NYSE) announced a series of actions designed to help borrowers and loan servicers address potential mortgage problems and prevent unnecessary home foreclosures among the more than 18 million single-family loans owned or guaranteed by Fannie Mae.
Fannie Mae said the actions are designed to build on and complement the recently announced streamlined loan modification program (SMP) that targets borrowers who have missed three full payments and meet certain other criteria. The steps announced today are meant to reach borrowers earlier with foreclosure prevention options, and include:
- Specific direction to servicers to provide foreclosure prevention assistance as soon as a borrower demonstrates the need for help — even if a borrower is current but default is reasonably foreseeable.
- Fannie Mae's new Early Workout program allowing servicers, in one step, to pre-negotiate a loan modification that becomes effective and permanent only after an initial trial period. The Early Workout process can begin as soon as a borrower demonstrates the need for a modification — even if a borrower is current but a default is reasonably foreseeable.
- Doubling of the maximum forbearance and repayment plan periods for most loans to borrowers in need of loan workouts.
- A new 2009 Single-Family Master Trust Agreement and servicer guidance that give Fannie Mae servicers the flexibility to remove a loan from an MBS pool once the loan is one month delinquent for the purpose of a loan modification. This applies only to loans backing securities issued on or after January 1, 2009. Trust agreements for pools issued before that date do not allow for this flexibility, but as described above, Early Workout gives servicers the tools necessary to address problem loans as early as necessary, regardless of MBS pool date.
These policy changes will enable Fannie Mae servicers to provide a uniform, consistent set of foreclosure prevention options for borrowers who demonstrate the need for help, whether a loan is owned by Fannie Mae or is included in a securitized Fannie Mae MBS pool.
"A borrower's best chance of avoiding foreclosure is to get help as quickly and efficiently as possible," said Herb Allison, president and chief executive officer of Fannie Mae. "These changes to our servicing policies are intended to remove administrative obstacles so that Fannie Mae borrowers can get the help they need and avoid foreclosure. It is important that all who have a stake in the recovery of the U.S. housing market — including borrowers, investors and lenders — work together to help limit foreclosures, which have both economic and human costs to communities across America. Investors in our MBS will continue to be entitled to receive the payments due on their investments, while Fannie Mae and servicers will have more tools to manage the risk of foreclosure during these unprecedented times."
These steps are the latest in a series of recent actions Fannie Mae has taken to help minimize home foreclosures. Fannie Mae is working with the Federal Housing Finance Agency and 27 lenders and servicers in the HOPE NOW alliance to launch SMP by December 15. Additionally, the company has directed servicers to suspend foreclosure sales and the completion of evictions on occupied single-family properties through January 9, 2009.
Today's announcements are more fully explained below.
New Servicer Guidance
Previously, Fannie Mae's foreclosure prevention efforts have generally been made available to a borrower only after a delinquency occurs. Under Fannie Mae's new guidance, loan servicers can and should use foreclosure prevention tools to assist distressed borrowers when a borrower demonstrates the need. As noted above, these guidelines apply to borrowers who are still current in their payments but whose default is reasonably foreseeable. This new guidance is effective immediately.
Early WorkoutTM Program
Under Fannie Mae's existing single-family workout practices, a borrower must sign documents to initiate a trial workout period during which time the servicer agrees to forbear from taking action against the borrower. When the trial workout period is over, the borrower must execute a new agreement to convert the workout to a permanent modification. Under Fannie Mae's Early Workout program, the borrower will sign a single document at the beginning of the process to establish a new monthly payment during a trial period. If the borrower successfully makes the new payments during the trial period, the workout will convert to a permanent modification. The Early Workout program can be used if a delinquency has either occurred or is confirmed to be reasonably foreseeable.
The Early Workout program adds to the efforts underway through the SMP, which will be the subject of a separate announcement to be released prior to the December 15, 2008 SMP implementation date. A modification under the SMP will be proactively offered to borrowers who have missed three payments and whose loans and financial conditions meet certain pre-set criteria. The Early Workout is an option available for any troubled Fannie Mae loan, regardless of delinquency status, when the borrower qualifies under our servicing guidelines. The terms of an Early Workout will depend on the servicer's assessment of an individual borrower's situation.
Longer Forbearance and Repayment Plan Periods
Servicers will now be able to offer forbearance and repayment plan arrangements for longer periods to most single-family borrowers. Whenever allowed by our MBS Trust documents, the maximum period of forbearance (when a borrower's payments are suspended or reduced) has been increased for most mortgages from 6 months to 12 months. Additionally, the maximum length of a repayment plan (when a borrower makes additional payments over an extended period to bring a loan current) has been increased for most mortgages from 18 months to 36 months, including any periods of forbearance.
New and Amended MBS Trust Documents
In connection with these changes, Fannie Mae issued a new 2009 Single-Family Master Trust Agreement, an Amended and Restated 2007 Single-Family Master Trust Agreement, a new Single-Family base Prospectus, and updates to its servicing guidelines.
Fannie Mae's MBS Trust agreements generally require that the servicer of an MBS mortgage loan remove the mortgage loan from the related MBS pool prior to modifying a loan. Generally, to facilitate a loan modification and avoid a foreclosure, servicers may request that Fannie Mae remove a loan from its MBS pool at any time after the loan has been in default for at least four consecutive monthly payments without a full cure of the delinquency.
The 2009 Single-Family Master Trust Agreement (MBS issued on or after January 1, 2009) and servicer guidance gives Fannie Mae servicers the flexibility, in extraordinary circumstances, to remove a loan from an MBS pool once the loan is one month delinquent for the purpose of a loan modification.
The MBS Trust documents, as well as the associated Single-Family base Prospectus that becomes effective January 1, 2009, have been posted online at:
Trust Documents: http://www.fanniemae.com/mbs/documents/mbs/trustindentures/index.jhtml
Investors should refer to the Trust agreements and the new base Prospectus for more detailed information. The current issue of MBSenger® also provides an overview of the changes described in this release.