More than 40 mortgage servicers and trustees of private-label mortgage-backed securities (PLS) have received a letter from Federal Housing Finance Agency (FHFA) Director James B. Lockhart urging them to support the streamlined modification program (SMP) announced earlier this month.
Lockhart's letter says the SMP should become an accepted standard for identifying seriously delinquent borrowers who can be helped to avoid preventable foreclosure. Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks are the largest investors in PLS, and their holdings – originally AAA-rated securities – comprise roughly 20% of all PLS outstanding.
"Fannie Mae and Freddie Mac are the acknowledged leaders in creating national standards for mortgage lending in the United States," wrote Lockhart. "I am writing to request your prompt action to support the standards set forth by Fannie Mae and Freddie Mac's new streamlined modification program for all mortgages. Trustees and servicers have an obligation to minimize losses to investors in, and guarantors of, mortgage-backed securities. The critical component for reducing losses is to stabilize the housing market."
The SMP targets borrowers who have missed three payments or more, own and occupy their property as a primary residence and have not filed for bankruptcy, and it creates a standard definition of an "affordable" mortgage payment (no more than 38% debt-to-income).
The FHFA letter describes how SMP can work within servicers' existing agreements and obligations. Fannie Mae and Freddie Mac will issue specific instructions for the December 15th program implementation shortly.
"Stronger foreclosure prevention activities should help to arrest the downward spiral in house and private-label MBS prices," the letter continues. "It is time to act to modify loans to keep people in their homes and to prevent foreclosures, which harm neighborhoods and create more losses for investors."