Fannie Mae Introduces a Principal Reduction Modification Program for Certain Mortgage Loans

As directed by its regulator, Federal Housing Finance Agency (FHFA), and jointly developed with Freddie Mac, Fannie Mae announces a new mortgage loan modification program, Fannie Mae Principal Reduction Modification. This program assists seriously delinquent underwater borrowers to recover from home value depreciation experienced as a result of the housing crisis.  The Fannie Mae Principal Reduction Modification offers a one-time principal reduction on a specific subset of first-lien, non-investment property mortgage loans that are at least 90 days delinquent as of March 1, 2016, with negative equity, and have an unpaid principal balance of less than or equal to $250,000. In addition, the mortgage loan must have a post-modification mark-to-market loan-to-value ratio that is greater than 115%.  Additional eligibility requirements apply that are detailed more in Fannie Mae Lender Letter LL-2016-02.

Fannie Mae estimates that approximately 22,000 loans in its Single-Family guaranty book of business are eligible for the Principal Reduction Modification Program. Consistent with current practice, if a mortgage loan is in an MBS trust and is eligible for the Principal Reduction Modification Program, the loan will be removed from the trust only after it is deemed to be continuously delinquent through four or more consecutive monthly payment due dates. At the time the loan is removed from the trust, the investor will receive the stated principal balance of the mortgage loan plus one month’s interest at the applicable pass-through rate in the form of a prepayment.

For questions, market participants may contact the Fannie Mae Fixed-Income Investor Helpline at 1-800-232-6643, Option 2 or by e-mail.

Originally published: 04/14/16