WASHINGTON — In an attempt to stem foreclosures and set industry guidelines, federal officials have set up a mortgage modification program for the loans controlled by Fannie Mae and Freddie Mac.
To qualify, borrowers must be three months behind on their home loans. The interest rate or principal amount of the loan would be reduced so that borrowers would not pay more than 38% of their income 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 mortgage loans in the U.S. One percent of the loans backed by the GSEs are 90 days or more past due.
Federal Housing Finance Agency Director James Lockhart said he would like to see the plan adopted as the industry standard.
But the program already has detractors. Fox Business News has reported that FDIC Director Sheila Bair criticized the program as falling short of what is needed.
Officials from the Treasury Department, Wells Fargo, HUD and Hope Now, an alliance of mortgage companies organized last year by the Bush administration, were in attendance at the press conference announcing the plan.
In addition, Citigroup announced it would take measures to slow foreclosures. A key component of the program is that borrowers don't have to be late on their payments to qualify nor do they have to carry subprime loans.
Borrowers could be eligible for lower interest rates or longer loan terms if they are at risk of falling behind because they live in an area with high unemployment or declining home prices. Borrowers in Arizona, California, Florida, Michigan, Ohio and Indiana are being targeted.
Homeowners could have their interest rate adjusted, their principal reduced or the term of their loan increased.
Citigroup's plan, unlike other plans, does not require a 90-day delinquency or that homeowners have subprime or risky loans.
Citigroup said it won't initiate a foreclosure or complete a foreclosure sale for any eligible borrower if the borrower is in his 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 last month. Bank of America earlier this year announced plans to modify many of the Countrywide loans it inherited. The FDIC is modifying thousands of mortgages as a result of its takeover of IndyMac Bank.
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