Holes in the New Fannie/Freddie Loan Mod Plan

In a great post yesterday, Felix Salmon calls Fannie and Freddie’s new loan mod plan “not particularly exciting,” and outlines some of its holes.

From Market Movers:

It applies only to mortgages owned by Frannie, which means, by definition, that it doesn't include subprime mortgages. FHFA is trying to apply moral suasion -- but no cash -- to persuade other mortgage holders to adopt the same plan. Good luck with that.

It doesn't even begin to address the problem of mortgages which have been securitized, rather than being held by a single bank...

It requires borrowers to be 90 days delinquent -- and therefore gives many borrowers with mortgages over 38% of their gross monthly income a massive incentive to cease making any mortgage payments now.

The onus is on the borrower to initiate proceedings, providing a package including "monthly gross household income, association dues and fees, and a hardship statement". For $800 per mod, servicers aren't going to be proactive about helping get this kind of thing done, especially given how overworked they are already.

Still, this program could be quite helpful to borrowers that qualify. The problem--as Salmon points out--is that its reach is too limited.

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