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The HSH Blog

Mortgage & Housing Market News from HSH.com
November 12th, 2008

FHFA Announces Industry-Standard Loan Mods



The Federal Housing Finance Agency, regulators of mortgage giants Fannie Mae and Freddie Mac, announced a program yesterday “designed to greatly reduce preventable foreclosures with a simplified, streamlined loan modification program to get struggling homeowners into mortgages that they can afford.”

What makes this program different and somewhat revolutionary is that the FHFA has created an industry standard that defines what makes a home loan “affordable.” Only the “highest risk borrower, who has missed three payments or more,” is eligible for this mortgage program.

The streamline program utilizes several modifying approaches including reducing the interest rate, extending the life of the loan, a change of the loan product (ARM to a fixed rate), and/or “deferring payment on part of the principal” to achieve the “benchmark ratio” for calculating an individual’s affordable payment. The benchmark for creating an affordable payment is 38% of a homeowner’s gross-monthly income.

Homeowners must express a strong willingness and an incentive to pay back their newly-structured loan. The FHFA is confident their program can be a success if “homeowners, banks, mortgage servicers, investors, Fannie Mae and Freddie Mac work together.” That’s a lot of different parties that all have to agree on a central solution. Yet, as home values continue to decline, investors are beginning to look at these types of solutions as the best opportunity to get the maximum amount of their investment back.

What remains troubling to many is that there has yet to be some form of government-sponsored program that focuses on the healthy consumers that can support the market. Just today the Federal Reserve released a joint press release that urged banks to extend money to credit-worthy borrowers:

The agencies expect all banking organizations to fulfill their fundamental role in the economy as intermediaries of credit to businesses, consumers, and other creditworthy borrowers… Lending to creditworthy borrowers provides sustainable returns for the lending organization and is constructive for the economy as a whole.

The FHFA program is aimed at providing help for thousands of homeowners, as Calculated Risk puts it, “a drop in the bucket” of the total problem. Creating the “industry standard” was essential, now the government should focus on getting responsible homeowners into homes.

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5 Responses to “FHFA Announces Industry-Standard Loan Mods”

  1. jhon Says: December 10th, 2008 at 10:31 pm

    Thanks for this information, nice article. I need information to refinance my home because I read at http://home-refinance-mortgage–loan.blogspot.com/ , the global crisis will make the rates increase, so it’s to hard to apply credit for my home now. can you help me??

  2. Tim Manni Says: December 12th, 2008 at 1:01 pm


    Thanks for reading and commenting. I’m not sure exactly what you read in that particular blog, but recent Federal initiative are now in place (http://blog.hsh.com/?p=1492) to pressure mortgage rates downward. The recent statistics alone have shown that the drop in 30-year fixed rates have led to a tremendous refi boom (http://blog.hsh.com/?p=1611).

    If you’d like more info on why loan mods have been unsuccessful in the past, try reading “http://blog.hsh.com/?p=1628.”

    If you’d like more info on refinancing, you can go to “http://library.hsh.com/?row_id=143,” “http://www.hsh.com/usnrcalc.html,” and “http://library.hsh.com/articles-hsh.asp” — scroll down to the section on Refinancing.

    Hope this helps, thanks again for reading and commenting,


  3. Premier Financial Alliance Says: June 29th, 2009 at 1:49 pm

    Really very nice article. I liked it

  4. Tim Manni Says: June 30th, 2009 at 9:00 am



  5. Mortgage Solution Online Says: September 22nd, 2009 at 1:35 pm

    homeowners industry was essential, nice

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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