WASHINGTON — In an attempt to stem foreclosures and set industryguidelines, federal officials have set up a mortgage modificationprogram for the loans controlled by Fannie Mae and FreddieMac.
To qualify, borrowers must be three months behind on their homeloans. The interest rate or principal amount of the loan would bereduced so that borrowers would not pay more than 38% of theirincome on housing expenses. The homes must be owner-occupied.
The plan applies to loans made on or before Jan. 1, 2008.
Fannie Mae and Freddie Mac control more than 58% of the mortgageloans in the U.S. One percent of the loans backed by the GSEs are90 days or more past due.
Federal Housing Finance Agency Director James Lockhart said hewould like to see the plan adopted as the industry standard.
But the program already has detractors. Fox Business News hasreported that FDIC Director Sheila Bair criticized the program asfalling short of what is needed.
Officials from the Treasury Department, Wells Fargo, HUD and HopeNow, an alliance of mortgage companies organized last year by theBush administration, were in attendance at the press conferenceannouncing the plan.
In addition, Citigroup announced it would take measures to slowforeclosures. A key component of the program is that borrowersdon't have to be late on their payments to qualify nor do they haveto carry subprime loans.
Borrowers could be eligible for lower interest rates or longer loanterms if they are at risk of falling behind because they live in anarea with high unemployment or declining home prices. Borrowers inArizona, California, Florida, Michigan, Ohio and Indiana are beingtargeted.
Homeowners could have their interest rate adjusted, their principalreduced or the term of their loan increased.
Citigroup's plan, unlike other plans, does not require a 90-daydelinquency or that homeowners have subprime or risky loans.
Citigroup said it won't initiate a foreclosure or complete aforeclosure sale for any eligible borrower if the borrower is inhis principal residence, is working with the bank in
good faith and has enough income for affordable
mortgage payments.
The plan could help as many as 500,000 borrowers.
JPMorgan Chase launched a mortgage modification plan late lastmonth. Bank of America earlier this year announced plans to modifymany of the Countrywide loans it inherited. The FDIC is modifyingthousands of mortgages as a result of its takeover of IndyMacBank.
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