WASHINGTON (Reuters) – The top housing regulator said on Wednesday it will make it easier for struggling homeowners to lower monthly mortgage payments through a federal anti-foreclosure program.
Under the initiative, mortgage finance firms Fannie Mae and Freddie Mac will no longer require documents on personal finances or paperwork that records financial hardship from homeowners who are at least 90 days delinquent in order for them to receive a mortgage modification.
“This new option gives delinquent borrowers another path to avoid foreclosure,” said FHFA Acting Director Edward DeMarco in a statement. “We will still encourage such borrowers to provide documentation to support other modification options that would likely result in additional borrower savings.”
The program will only be open to borrowers with loans backed by government-controlled Fannie Mae and Freddie Mac. The two firms finance about two-thirds of all new U.S. mortgages, but account for a far lower portion of delinquent mortgages.
Officials did not provide an estimate of how many homeowners would be able to qualify- only about 3.3 percent of mortgages backed by Fannie Mae and Freddie Mac were deemed seriously delinquent in January, according to FHFA.
Since the two companies were seized by the government in 2008, they have completed 1.3 million loan modifications.
Fannie Mae and Freddie Mac are paying mortgage servicers to process each modification. The companies will absorb the losses on loans or mortgage securities they own.
Officials said the initiative aims to encourage servicers to resolve delinquencies earlier, help keep more borrowers in their homes and minimize losses to Fannie Mae and Freddie Mac, which have relied on taxpayer support.
Under the streamlined modification program, mortgage servicers will work with borrowers to reduce monthly payments by changing interest rates, extending the length of the loan term or providing principal forbearance, which postpones the repayment of a portion of a loan balance but doesn’t permanently reduce it.
Homeowners who qualify must go through a trial period. Their loan modifications will not become final until they have made three consecutive payments.
The new initiative takes effect on July 1 and will end on August 1, 2015.
The Obama administration has placed pressure on the regulator to be flexible with struggling homeowners. Fannie Mae and Freddie Mac have been blocked by their regulator from forgiving loan principal. DeMarco has argued doing so would be too costly relative to other types of mortgage relief.
(Reporting by Margaret Chadbourn- Editing by Theodore d’Afflisio and Kenneth Barry)