GSEs, Lenders Rally Behind Modification Plan

The U.S. Treasury Department on Wednesday launched the Making Home Affordable program, which was announced recently by President Barack Obama. The program’s two branches — refinance and modification — are estimated to apply to some 9 million homeowners either behind on payments or at risk of falling behind due to dropping home values, job loss, or other hardship. The modification program will be effective only or mortgages originated on or before Jan. 1, 2009 on owner-occupied, single-family one- to four-unit properties that serve as a primary residence, the Treasury said. Borrowers in bankruptcy are not eligible, but those facing foreclosure will see foreclosure action suspended during a trial period or while borrowers are considered for preventative options. Within hours of the announcement, the government-sponsored entities (GSEs) and a variety of the largest U.S. lenders and servicers began rallying in support for the program. Freddie Mac (FRE) quickly announced the launch of two initiatives to compliment the administration’s housing plan. Freddie’s new relief refinance mortgage product, which can be as high as 105 percent of the property’s value, is designed to reduce interest rates or amortization terms for borrowers “to improve their position for long-term homeownership success….” Freddie also rolled out a modification initiative to begin April 1; borrowers with Freddie-owned or -guaranteed mortgages originated on or before Jan. 1 will be eligible to receive a workout “in some cases…before they fall behind on their mortgage payments,” Freddie said in a media statement. A GSE-wide foreclosure sale suspension at Freddie — originally announced in November — is set to expire Friday. Freddie announced Wednesday it would continue to suspend foreclosure sales on mortgages eligible for the modification program within the Making Home Affordable plan. Freddie will instruct its servicers not to complete a foreclosure sale without a complete and thorough effort to contact the borrower with workout options. For all other mortgages, Freddie said servicers retain authority to postpone foreclosure sales on a case-by-case basis if some other modification is being pursued. Fannie Mae (FNM) also announced Wednesday two similar initiatives — a refinance program with added flexibility so “underwater” borrowers can refinance up to 105 percent of their home’s value — and a modification program that will target a 31 percent payment-to-gross-income range, apply to qualified borrowers even before they fall behind on their payments, and work in concert with a foreclosure pause to allow time for servicers to evaluate borrowers and determine need and eligibility. Citigroup Inc. (C) responded promptly to the Treasury’s announcement, issuing a statement of support within hours of the plan rolling out. Bank of America Corp. (BAC) also threw in its support, saying it would continue the foreclosure sale moratorium on borrowers that potentially qualify until the company “becomes operationally ready.” JP Morgan Chase & Co. (JPM) came out in strong support of the plan, saying it approved of the fair and consistent guidelines, the targeted bracket of homeowners with mortgages below $729,750 on owner-occupied homes only, the requirement for full income documentation and evidence of financial hardship, and the collective impact of all factors (and incentives) of the program on servicers to pursue the most financially beneficial modification for the borrowers. “There is no silver bullet,” CEO Jamie Dimon said of the troubled economy and tight financial market. “The thoughtful and rapid roll-out of various programs is the only intelligent way to begin to solve these problems. These mortgage modifications are economically and morally the right thing to do for individual customers.” Wells Fargo Home Mortgage under parent company Wells Fargo & Co. (WFC) said Wednesday it would offer the modification program for its own loans and loans it services for GSEs Fannie and Freddie, as well as for all other investors whose servicing contracts allow. The company will also offer the refinancing options to its customers with Fannie and Freddie loans. “We believe the administration’s plan is thoughtful and comprehensive, and it addresses the current challenges our nation faces,” said Mike Heid, co-president of Wells Fargo Home Mortgage, in a media statement Wednesday. “Importantly, it helps customers facing true financial hardships while guarding against moral hazard. Write to Diana Golobay at Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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