Federal Housing Finance Agency announces foreclosure initiative

The Federal Housing Finance Agency announced a major initiative that aims to sandbag the flood of foreclosures.

The program will simplify and streamline the loan modification plan to get struggling homeowners into mortgages they can afford.

As housing prices have fallen, delinquencies on mortgages have tripled, not just for subprime and Alt-A, but also for prime mortgages. Foreclosures have increased almost 150 percent from two years ago. Foreclosures hurt families, their neighbors, whole communities and the overall housing market. We need to stop this downward spiral, said James Lockhart, director of FHFA. FHFA is the regulator for the Washington, D.C.-based Fannie Mae (NYSE: FNM) and McLean, Va.-based Freddie Mac (NYSE: FRE).

It is an achievable goal if homeowners, banks, mortgage servicers, investors, Fannie Mae and Freddie Mac all work together, he said.

The program targets borrowers who have missed three or more payments, own and occupy the property as a their primary residence, and has not filed for bankruptcy.

The program will modify the borrowers loan so that the payment is no more than 38 percent of monthly gross income, which will be achieved through a mix of reducing the mortgage interest rate, extending the life of the loan or deferring payment on part of the principal.

Fannie Mae and Freddie Mac loan servicers will be responsible for implementing the program by Dec. 15 and will receive $800 for each loan modified through the program.

Fannie and Freddie own or guarantee some 31 million mortgages, about 58 percent of all single family home loans though those loans only represent about 20 percent of seriously delinquent loans, Lockhart said.