(Updates with additional Freddie comments.)
DOW JONES NEWSWIRES
Mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) are
offering new refinancing options to homeowners whose loans they own
and will work with loan servicers to help borrowers modify their
loans into more affordable mortgages.
The two programs launched Wednesday are part of the Obama
administration's "Making Home Affordable" program. They are
designed to significantly expand the number of borrowers who can
refinance or modify their mortgages to an affordable payment.
"Potentially millions of homeowners could qualify for and
benefit from these initiatives," said Fannie Chief Executive Herb
Allison.
The government took over both Fannie and Freddie in September
after they ran up billions of dollars in losses and saw their
portfolios suffer amid rising foreclosures and exposure to subprime
mortgages.
Under Fannie's "Home Affordable Refinance" program, which is
similar to Freddie's "Relief Refinance Mortgage" program, borrowers
who have mortgages owned by Fannie and have a solid payment history
on the mortgage can refinance without buying new or additional
mortgage insurance if the loan at the time of the refinance is for
more than 80% of a home's value.
The mortgage firms can refinance loans up to 105% of a home's
value, helping even borrowers who are a bit under water.
Both Fannie and Freddie's programs end in June 2010.
Under the program called "Home Affordable Modification" by both
companies, loan servicers may cut interest rates, lengthen the
payment period or take other steps, such as principal forbearance,
to reduce monthly payments to as low as 31% of the borrower's
pretax income.
Fannie said for homeowners to be considered, the loan must be
for a primary residence, the amount owed on the mortgage must be
less than or equal to $729,750, and the mortgage must have
originated before Jan. 1. Homeowners don't have to be delinquent
with payments to qualify.
Additionally, later Wednesday, Freddie said it would suspend
foreclosure sales on mortgages eligible for the "Home Affordable
Modification" program announced as part of the government's "Making
Home Affordable" plan. Freddie's previous suspension of foreclosure
sales on occupied properties will expire on Friday.
Freddie specifically said it would instruct its servicers not to
complete a foreclosure sale on a mortgage eligible under the
program unless they "completed their effort to contact the borrower
and either the borrower did not respond or lacked the capacity or
willingness" to participate in the programs.
Fannie's shares were even at 41 cents in after-hours trading,
while Freddie's shares rose 2.2% to 42 cents. The company's shares
closed the regular session up 3 cents and 2 cents,
respectively.
-By Kathy Shwiff, Dow Jones Newswires; 201-938-5975;
Kathy.Shwiff@dowjones.com