Government Rolls Out Program for Mortgage-Holders in Trouble

The Federal Housing Finance Agency Tuesday announced the creation of the Streamlined Modification Plan (SMP) as their solution to solving the subprime mortgage crisis and keeping millions of people in their homes. The program will be implemented December 15.

SMP will be used to accelerate government's efforts to curb home foreclosures by renegotiating delinquent loans held by Freddie Mac and Fannie Mae.

The plan will enable qualified borrowers’ interest rates and payment terms to be reduced, so that they will not spend more than 38 percent of their gross monthly income on housing expenses.

In order to qualify for the plan, borrowers have to be at least three months behind on their home loans and would need to owe 90 percent or more than the home is currently worth.

Homeowners who have filed for bankruptcy and those who do not occupy their homes cannot qualify for the plan. But according to Bloomberg, there is no limit on the number of times a loan can be modified.
 
Most-at-risk homeowners will get help in several ways to reduce their monthly payments, which include extending the number of years of the loan, reducing the interest rate or rolling back part of the principal.

Fannie and Freddie will take losses of about $800 per modification on loans or mortgage securities they own under the plan, while investors in mortgage bonds guaranteed by government-run corporations will face larger losses.

Fannie and Freddie hold 31 million mortgages, or 58 percent of all home loans in the U.S.

Industry observers don’t see an immediate impact resulting from the plan.

James Lockhart, director of the Federal Housing Finance Agency, which took over Freddie and Fannie in September, indicated that SMP does not get at the loans that have been packaged into mortgage-backed securities and are now held by Wall Street firms or other investors.

Citigroup is also embarking on a six month plan to prevent mortgage foreclosures by assisting 130,000 borrowers who live in areas with rising unemployment and plummeting home prices, which could modify $20 billion in home loans.