James B. Lockhart, Director of the Federal Housing Finance Agency (FHFA) today released the organization’s September monthly Foreclosure Prevention Report. The study — which provides monthly data on the loss mitigation efforts of Fannie Mae and Freddie Mac, as well as information on delinquencies, foreclosures initiated, and foreclosures completed — shows that of the two government-sponsored enterprises’ (GSEs’) 30.7 million residential mortgages, approximately 678,000 (2.21 percent) are at least 60 days delinquent or in foreclosure.
According to the FHFA, while loans 60+ days delinquent have increased since the end of 2007, loans for which foreclosure was started actually decreased. Loss mitigation actions have increased for all workout types, FHFA said, and short sale and deed-in-lieu volumes increased significantly in September 2008.
In comparison to 2007, the enterprises’ loss mitigation performance ratio shows considerable sustained improvement, with the year-to-date ratio at 54.6 percent versus 43.5 percent for 2007. The loss mitigation ratio is calculated using the total mitigation activities (payment plans, HomeSaver Advances, loan modifications, short sales, deeds in lieu, assumptions, and charge-offs) divided by the total of loss mitigation activities plus foreclosures completed and third-party sales.
_FHFA’s report shows that as of September 30, 2008:_ – Loans 60+ days delinquent (including those in bankruptcy and foreclosure), as a percent of all loans, increased from 1.46 percent as of March 31 to 1.73 percent as of June 30, to 2.21 percent as of September 30. – Loans for which foreclosure was started, as a percent of loans 60+ days delinquent, declined from 8.29 for the first quarter and 7.81 percent for the second quarter, to 7.12 percent for the third quarter. – Loans for which foreclosure was completed, as a percent of loans 60+ days delinquent, increased from 2.41 percent for the first quarter to 2.55 percent for the second quarter, and stabilized at 2.55 percent for the third quarter. – Modifications completed declined from 15,636 in the first quarter to 15,372 for the second quarter, down to 13,450 for the third quarter. However, loans reinstated through Fannie Mae’s HomeSaver Advance (HSA) Program increased from 1,244 in the first quarter to 16,658 in the second quarter, up to 27,277 in the third quarter.

The FHFA regulates Fannie Mae, Freddie Mac, and the 12 Federal Home Loan Banks. These government-sponsored enterprises provide more than $6.2 trillion in funding for the U.S. mortgage markets and financial institutions.
Both Fannie Mae and Freddie Mac, working with FHFA, the Treasury Department, and members of the HOPE NOW Alliance, issued anticipated guidelines on Friday for their servicers to implement the new streamlined loan modification program (SMP). The SMP is designed to support servicers’ foreclosure prevention efforts and provide more affordable monthly payments for borrowers with mortgages owned by Fannie and Freddie, and in some cases those with mortgages that have been securitized by the GSEs.
Servicers should begin proactive solicitation of eligible borrowers on December 15, the GSEs said, and should continue until further notice. Their servicers will need to take a number of actions as a result of the introduction of the SMP, the GSEs noted.
At a high level, the servicer will first need to identify delinquent borrowers who appear to be SMP-eligible, and then send them a written solicitation for additional information to fully determine eligibility. Once the servicer has income information, an SMP agreement can be issued. If the borrower returns the agreement, remits the first trial payment, and provides the required documents, the servicer will determine whether the borrower is eligible to participate in the SMP, and if so the trial period will begin. Once the borrower successfully completes the trial period, the modification terms set forth in the SMP agreement will automatically become effective.
The program targets the highest-risk borrower who has missed three payments or more, owns and occupies the property as a primary residence, and has not filed for bankruptcy. Under the GSE plan, servicers must incorporate proposed modification terms in a specific order of succession until the borrower’s monthly payment is reduced to 38 percent of their gross monthly income. Servicers are instructed to start by capitalizing arrears (if allowed by state law) and by waiving late fees and penalties. If that doesn’t lower payments to the 38 percent level, then servicers can extend the loan term, reduce the interest rate, and lastly, make a principal adjustment (the amount of which will result in a balloon payment due upon payoff of the mortgage loan or sale of the property).
When the GSEs’ streamlined loan modification program was first announced last month, Lockhart said he expected the two enterprises’ leadership role in the industry to set the standard for assisting at-risk borrowers who could lose their homes to foreclosure.