WASHINGTON (3/5/09)—The Obama administration released details Wednesday of its mortgage loan modification program first announced Feb. 18. Credit Union National Association (CUNA) Senior Assistant General Counsel Jeffrey Bloch noted that credit union members are starting to show strong interest in the program. He added credit unions may start to get a lot of member inquiries now that guidance has been released. “Although this program is voluntary, credit unions may now want to start reviewing their loan portfolios to see which loans are candidates for modification. That way they can be prepared for the next step, which is to execute the agreements with the U.S. Treasury Department that are required under this program,” Bloch said. Under the Obama administration’s “Making Home Affordable” program, as many as 7 to 9 million homeowners may get assistance to refinance their mortgages to avoid foreclosure, if they make a good-faith effort to stay current on their mortgage payments. The plan consists of three components: one to help responsible homeowners refinance into affordable mortgages, a comprehensive $75 billion loan modification program, and a plan to support lower mortgage rates by boosting confidence in Fannie Mae and Freddie Mac. Early CUNA analysis shows what the program details means to credit unions:
* Borrowers with existing Freddie Mac and Fannie Mae mortgages may refinance through those institutions even if the borrower has less than 20% equity in their house; * Federally insured credit unions, if they choose to make loan modifications on current or delinquent mortgages in order to get the benefits of the program, may do so according to the Treasury guidelines. Also, the National Credit Union Administration, as well as federal bank and thrift regulators, were asked to "encourage" federally insured institutions to participate in the program (see related Story: Regulators urge loan mod participation); * To be eligible under the Treasury plan, a loan must be for an owner-occupied residence. The loan’s balance must be lower than $729,750 for a single family unit, and the borrower must have a debt to income (DTI) ratio of more than 31%: * By reducing the interest rate on the modified loan, the lending institution must first reduce the borrower’s monthly mortgage payment to no more than 38% of the borrowers monthly income; and * The Treasury will match further reduction in monthly payments—below the 38% DTI ratio --dollar-for-dollar with the lender/investor, down to a 31% front-end DTI ratio for the borrower.
Holders and servicers of the modified mortgages will receive additional cash incentives, and a form of government subsidy on the modified mortgages. Also, eligible loans include those that credit unions hold in portfolio, as well as loans that have been securitized that the credit union services. For loans underlying “private label securitizations,” the guidelines require serivcers to “consider all eligible loans under the program guidelines unless prohibited by the rules of the applicable [pooling and servicing agreement] and/or other investor servicing agreements.” Use the resource links below for program details and to access a government site on financial stability.