Fannie Mae announces new more flexible loss mitigation options

On Dec. 8, Fannie Mae announced it was giving mortgage servicers more flexibility and more loss mitigation options to minimize foreclosures. The changes will allow servicers to act earlier to avoid potential delinquencies. The changes affect mortgages in mortgage backed securities (MBSs) and mortgages held by Fannie Mae in portfolio.

The changes “build on and complement” the Streamlined Loan Modification Program (SLMP) that takes effect on December 15, 2008, and is described elsewhere in this week’s Washington Report. Highlights of the changes include:

1. Authority for servicers to apply loss mitigation tools for borrowers facing reasonably foreseeable, imminent default, so they don’t have to wait until they are late making payments.
   
2. A new Early Workout program that allows servicers to pre-negotiate a loan modification that takes effect and becomes permanent after the borrower successfully completes a trial period.
   
3. Clarification that a loan can remain in a pool even if it is 24 months delinquent, if there is ongoing activity to address the problem.
   
4. Elimination of the requirement that a loan must proceed to foreclosure after a specified period of delinquency.
   

Fannie Mae has also announced a new Single Family Master Trust Agreement that will allow servicers, for new MBSs, to remove a loan that is 30 days delinquent from the MBS to modify the loan.

Freddie Mac guidelines also permit servicers to address problems faced by borrowers who are at risk of imminent default. It is not known whether Freddie is considering enhancing this policy to complement the SLMP.

12/15/08