Loan Mods at Fannie, Freddie on the Rise

Mortgage giants ""Fannie Mae"":http://www.fanniemae.com and ""Freddie Mac"":http://www.freddiemac.com modified nearly 24,000 loans during the fourth quarter of 2008, an increase of 76 percent over the third quarter, according to data released this week by the GSEs' regulator, the ""Federal Housing Finance Agency"":http://www.fhfa.gov (FHFA).
""FHFA's report"":http://www.fhfa.gov/webfiles/2109/4Q08ForeclosurePreventionReport.pdf, which details the actions Fannie Mae and Freddie Mac have taken to keep borrowers in their homes, said that the modifications made by the two government-backed financiers, along with their suspension of foreclosures that began November 26, reduced the number of foreclosures by nearly 27 percent during the final quarter of last year.
FHFA Director James B. Lockhart, said, he expects the two companies' modification numbers to continue to grow as the Obama administration's Making Home Affordable program picks up speed in coming months.
The GSEs' foreclosure prevention options include forbearance plans, payment plans, delinquency advances, and loan modifications. According to FHFA's report, workout options that led to resolution of delinquent accounts, which means the account was either reinstated or removed from the portfolio, increased 15 percent in the last quarter of 2008.
The report shows that as of Dec. 31, 2008, of the enterprises’ 30.7 million residential mortgages:
- Modifications represented 34 percent of fourth quarter loss mitigation actions, up from 22.2 percent in the third quarter.
- Completed payment plans constituted 19 percent of fourth quarter loss mitigation actions, compared to 24.2 percent in the third quarter.
- Short sales made up 8.9 percent of fourth quarter loss mitigation efforts, up from 7.7 percent during the third quarter.
- Deeds in lieu represented 0.8 percent of loss mitigation actions in Q4, compared to 0.7 percent in Q3.
The FHFA said that because of the foreclosure moratorium implemented by the GSEs at the end of last year, foreclosure was completed on 5.8 percent of foreclosure starts during the fourth quarter - that rate would have been 26.5 percent without the suspension.
FHFA also reported that the overall loss mitigation performance ratio (loss mitigation actions as a percentage of mortgages for which foreclosure was likely) increased from 55 percent during the third quarter of 2008 to 65.7 percent in the fourth quarter, for all mortgages serviced on behalf of Fannie Mae and Freddie Mac. For prime loans, the ratio increased from 45.1 to 54.2 percent, and for nonprime loans from 64.7 percent in the third quarter to 75.3 percent in the fourth quarter.
FHFA said these increases in workout ratios were the direct result of the foreclosure suspensions instituted by the GSEs. These moratoriums gave servicers more time to work with borrowers who were eligible for government-led home retention programs - during the fourth quarter of last year, before the new administration's Making Home Affordable plan, the prevailing initiative was the GSEs' Streamlined Modification Program (SMP).
FHFA stepped in to oversee Fannie Mae and Freddie Mac when the government seized control of them last September. The FHFA said in its foreclosure prevention report, ""The increase [in home retention numbers] shows that the post-conservatorship efforts of the enterprises are starting to work.""
Looking at all of 2008, FHFA said workouts completed by the GSEs generally kept pace with the rise in delinquencies, with short sales showing the largest increase. Still, the enterprises' 2008 REO additions increased 202 percent, compared to the number of foreclosed properties repossessed in 2007.