Fannie Mae, Freddie Mac Streamline Foreclosure Process

November 12, 2008 7:07 a.m. EST

Washington, D.C. (AHN) - Fannie Mae and Freddie Mac stepped up their efforts to prevent more foreclosures by streamlining the process. Instead of following the standard loan modification process which could include a review of the borrower's credit report and tax returns, the two largest mortgage lenders would focus on the borrower's income and ability to pay.

The new program, unveiled Tuesday at a press conference by Neel Kashkari, interim Treasury Secretary for financial stability, will start Dec. 15. It is applicable only to mortgages owned or guaranteed by Fannie and Freddie, which covers about half of the existing residential loans.

However, other major lenders such as the Bank of America, Wells Fare and Citigroup said they will use the formula on loans they administer for Fannie and Freddie, and their own loans too.

Under the streamlined regulations, a borrower who is 90 days delinquent could apply for a new loan if the payment will not exceed 38 percent of his gross monthly income. He must present as proof he underwent hardship like being laid off, which made it next to impossible to regularly pay his amortizations. The new loan could extend the terms from 30 to 40 years with interest rate, which could be reduced to up to 3 percent to make payments affordable.

Kashkari, in a statement, said, "The new protocol will be a standard for the industry to quickly move homeowners into long-term sustainable mortgages."