FNM said that the Streamlined Modification Program (SMP) announced by the Federal Housing Finance Agency (FHFA) in November is now available to Fannie Mae servicers and borrowers as an option to help prevent foreclosures. Fannie Mae on December 12, 2008, provided information and guidelines to its servicers regarding the implementation of the SMP.  The SMP is designed to be a streamlined process for modifying the loans of a large number of borrowers who are delinquent in their mortgage payment and may be able to avoid a foreclosure through the program. As FHFA has indicated, SMP was intended to help set standards in the mortgage servicing industry for conducting loan modification programs on a large scale as a foreclosure prevention measure.

Fannie Mae has been working with FHFA and 27 mortgage lenders and servicers in the HOPE NOW alliance to implement the SMP. Under the program, borrowers who meet certain eligibility criteria and demonstrate financial hardship may be eligible for a mortgage rate modification that reduces their monthly principal and interest payment. The streamlined process allows a borrower to sign a single document at the outset of the workout process that both establishes a new monthly payment during a three-month trial period, and sets forth the modification terms that will take effect if the borrower makes the new payments during the trial period. The program is available to borrowers who have missed at least three monthly payments on their existing mortgage loans.  “By bringing the collective efforts of FHFA, Treasury, HOPE NOW, Fannie Mae, Freddie Mac and other mortgage industry participants together through the SMP to confront the foreclosure challenge, we’ll be able to help more families across America stay in their homes,” said Herb Allison, Fannie Mae president and CEO. “Along with other recently announced initiatives by Fannie Mae to reach and help financially troubled borrowers earlier, including our Early Workout program, the SMP is a critical component of our company’s foreclosure prevention efforts. These loan workout efforts are helping more than 10,000 delinquent borrowers every month get back on track.”

Loan Modification Options

Through the SMP, servicers may change the terms of a loan to reduce a borrower’s first lien monthly mortgage payment, including taxes, insurance and homeowners association payments, to an amount equal to 38 % of gross monthly income. The changes in terms may include one or more of the following:

– Adding the accrued interest, escrow advances and costs to the principal balance of the loan, if allowed by state law;

– Extending the length of the mortgage loan as appropriate;

– Reducing the mortgage loan interest rate in increments of 0.125 % to an interest rate that is not less than 3 %. If the new rate is to set below the market interest rate, after five years it will step up in annual increments to either the original loan interest rate or the market interest rate at the time of the modification, whichever is lower;

– Forbearing on a portion of the principal, which will require the borrower to make a balloon payment when the loan matures, is paid off, or is refinanced.