Plan will more easily modify Fannie, Freddie loans

WASHINGTON — WASHINGTON - In an attempt to keep struggling homeowners from losing their houses, federal officials announced yesterday a simpler and quicker procedure for modifying loans held by mortgage giants Fannie Mae and Freddie Mac and expressed hope that it would be adopted by the entire industry.

The plan targets people who have missed three or more mortgage payments, live in the home and have not filed for bankruptcy protection.


The goal is to make cut the payments to no more than 38 percent of a household's monthly gross income by reducing the interest rate, deferring payments on part of the principal and extending the term of the loan to as long as 40 years.

Struggling homeowners who don't meet the criteria would be eligible for a customized review, although anyone who intentionally defaults on a loan to get it modified would be disqualified, officials said.


"Stabilizing our financial system will require not only strengthening our financial institutions so they are able to lend to our communities, but also helping homeowners avoid preventable foreclosures," Neel Kashkari, assistant Treasury secretary for financial security, said at a news conference.

"We must explore all tools to help homeowners and increase the availability of mortgage finance."

The plan will begin by Dec. 15 and aims to reduce the paperwork required to rework mortgage loans, said James B. Lockhart, director of the Federal Housing Finance Agency, which is the conservator put in charge of running Fannie Mae and Freddie Mac after the government took them over in September. To encourage mortgage servicers to participate, they will receive $800 for each loan that is modified.

Maryland Gov. Martin O'Malley announced an agreement last week with six loan servicers to help homeowners who have fallen behind on their mortgage payments to avoid foreclosure. Among other things, the servicers have agreed to a "cooling-off" period to ensure that borrowers don't lose their houses before they can get help.

Fannie Mae and Freddie Mac own or guarantee 58 percent of all single-family residential mortgages. The plan is modeled on one developed by the Federal Deposit Insurance Corp. to lower loan payments for borrowers with mortgages from the failed IndyMac Bank.