With HAMP resets looming, Fannie and Freddie authorize further modifications

Previously modified HAMP borrowers eligible for additional help

A little over a year ago, Freddie Mac reminded mortgage servicers that interest rates on some loans modified under the Home Affordable Modification Program would be resetting soon.

Now, with more HAMP resets looming, Freddie Mac and Fannie Mae are instructing servicers to offer further modification to some borrowers who’ve already had their loans modified under the HAMP program to protect against interest rate shock and the potential for an uptick in defaults.

Under HAMP, interest rates on modified step-rate mortgages are fixed for five years, then increase in steps by as much as 1% per year until the interest rate matches the market rate that was in effect when the borrower’s HAMP modification took effect.

According to a Securities and Exchange Commission filing, Freddie Mac issued a directive to its mortgage servicers to start evaluating borrowers on July 1, 2015, for their eligibility for a streamlined modification if they become 60 days delinquent within 12 months after a step rate increase to their HAMP modified mortgage’s interest rate.

Fannie Mae is also expected to issue a similar directive in the coming days.

Last April, Robert Kimble, senior director of mortgage servicing policy at Freddie Mac, said that there was concern that borrowers may not be aware of the coming rate reset.

"Hopefully the borrowers are aware of the reset," he said in April. "Though, the fear is there will be some recidivism."

Now, Freddie and Freddie are attempting to proactively guard against the potential for default.

“The Federal Housing Financing Agency worked with Freddie Mac and Fannie Mae to ensure that borrowers who may be facing hardship as a result of an interest rate reset on their HAMP loan modification have options that allow them to remain in their homes,” an FHFA spokesperson said.

“In most cases, keeping borrowers in their homes is the most beneficial outcome for all involved, including taxpayers, and we will continue to monitor these loans and make adjustments as necessary.”

Additionally, Freddie directed servicers to evaluate borrower response packages for a standard modification if they are current or less than 60 days delinquent to determine if they face imminent default as the result of a HAMP mortgage rate reset made within the past 12 months, Freddie said in the SEC filing.

According to Freddie’s filing, to be considered in imminent default, borrowers must have less than $25,000 in cash reserves and indicate they are having difficulty making the increased mortgage payment.

“Freddie Mac is encouraging servicers to implement the initiative as quickly as possible to reduce the risk of borrower re-defaults,” Freddie said. “However, servicers must implement the initiative to begin re-modification evaluations by July 1, 2015.”

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