Loan Modification in The United States - Fannie Mae/Freddie Mac Plan

Fannie Mae/Freddie Mac Plan

In the task at hand to make headway against foreclosures and the depressed housing market. Fannie Mae and Freddie Mac entered a new phase on December 9, 2008 for a fast-track program meant to make "hundreds of thousands of mortgages affordable to people who can't currently meet their monthly payments."

Through the SMP, servicers may change the terms of a loan to reduce a borrower's first lien monthly mortgage payment, including taxes, insurance and homeowners association payments, to an amount equal to 38 percent of gross monthly income. The changes in terms may include one or more of the following:

  1. Adding the accrued interest, escrow advances and costs to the principal balance of the loan, if allowed by state law;
  2. Extending the length of the mortgage loan as appropriate;
  3. Reducing the mortgage loan interest rate in increments of 0.125 percent to an interest rate that is not less than 3 percent. If the new rate is set below the market interest rate, after five years it will step up in annual increments to either the original loan interest rate or the market interest rate at the time of the modification, whichever is lower;
  4. Forbearing on a portion of the principal, which will require the borrower to make a balloon payment when the loan matures, is paid off, or is refinanced.

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