Servicers Can Modify Current Loans, Fannie Mae Says

In a move likely to be echoed by Freddie Mac (FRE), and perhaps a blueprint for changes in the private-party mortgage market, housing finance giant Fannie Mae (FNM) said late Monday that it had taken a series of steps to allow servicers to intervene in troubled mortgages before a borrower becomes delinquent, the latest in a series of changes at the GSEs designed to help head off a flood of residential mortgage defaults. Key among the changes are the introduction of a new 2009 Single-Family Master Trust Agreement and servicer guidance that give Fannie Mae servicers the flexibility going forward to remove a loan from an MBS pool once the loan is one month delinquent for the purpose of a loan modification — current trust agreements do not allow for removal until a loan is 120 days delinquent. The new servicing agreement will impact all securitizations from the start of next year going forward, but do not affect existing securitizations issued by the GSE, according to a press statement. For existing securitized loan pools, Fannie also said it had put new guidance into place that instructs 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. The GSE also said it had rolled out a streamlined modification process akin to what is being done at FDIC-controlled IndyMac Federal Bank, where borrowers simply agree to the modification and after a trial period, the loan is permanently modified. Traditional modifications do not execute the mod paperwork until after the borrower has completed a trial period. The bottom line here is that the GSE is making it so that its servicers don’t need to wait until a borrower is 90 days down to begin looking at modification options. “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. “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.” Other changes involved lengthening repayment and forbearance horizons, the GSE said, in an effort to help keep payments lower, longer. Fannie said it had extended the maximum period of forbearance from 6 months to 12 months, while it also pushed out repayment plan lengths from 18 months to 36 months. The changes come as both GSEs said they had halted foreclosures and evictions until early next year, to allow them to implement the so-called streamlines modification process announced by the U.S. Treasury and officials at the Federal Housing Finance Agency. The federal government is effectively managing the operations of both Fannie Mae and Freddie Mac, after each GSE was placed into conservatorship earlier this year. The changes, however, clearly will come at a cost to the GSEs, and possibly to servicers; both GSEs have already either applied for Treasury funds or have suggested they expect to do so in the near future, and servicers have been increasingly strapped by increasing requirements on advances. “Extending forbearances out to one year means that Fannie or its servicers are still advancing funds to investors,” said one source, a servicing manager that spoke with HousingWire on condition of anonymity. How and when servicers are reimbursed for workout options depends on what servicing contract applies to the loans in question, as well as the option offered, we were told. To see the full changes to the master agreement, click here. Write to Paul Jackson at [email protected].

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