Fannie Mae and Freddie Mac recently announced that the standard mortgage modification interest rate will be under 4 percent for the first time ever since the benchmark was established in January 2012. Fannie Mae will lower its standard modification interest rate from 4 percent to 3 point 875 percent. Meanwhile, Freddie Mac will lower its standard modification interest rate by the same amount beginning on November 5, 2015.
Servicers must use the current Fannie Mae Standard Modification Interest Rate when evaluating a borrower for a conventional mortgage loan modification, excluding Fannie Mae HAMP Modifications. Servicers must use the Freddie Mac Standard Modification interest rate when determining the terms of a Standard Modification Trial Period Plan, Freddie Mac Streamlined Modification Trial Period Plan or a Capitalization and Extension Modification for Disaster Relief Trial Period Plan.
One subject of much debate since the financial crisis has been what determines how much money banks keep in their reserve accounts to offset losses from loans that default, known as loan-loss provisions. A report from the Federal Reserve Bank of Cleveland discusses the issue of how banks determine their reserve levels for loan-loss provisions. The authors found in the data on U.S. banks covering the last several decades, banks tend to undercontribute to the reserves during periods of prosperity, which forces them to build up reserves during less-than-prosperous economic times.