GSEs Issue Guidance on Home Affordable Modification Program

On March 11, 2009, Freddie Mac issued Bulletin 2009-6 giving its servicers guidance on the Home Affordable Modification Program, one of the programs under the Obama Administration's Making Home Affordable initiatives. On March 4, 2009, Fannie Mae released guidance on its version of the program as Announcement 09-05, Introduction of the Home Affordable Modification Program, HomeSaver ForbearanceTM, and New Workout Hierarchy.  Details of the programs differ, but they share the same major requirements and goals. The goal of the programs is to help troubled borrowers who face hardship and have defaulted or are at imminent risk of default, as well as to help stabilize communities. The programs reduce mortgage payments for homeowner-occupants as low as 31 percent of the borrower's gross monthly income, provide for a trial period during which the borrower must make three monthly payments before the modification becomes permanent, and include incentives for servicers and borrowers to participate and succeed. Mortgages with balances up to $729,750 are eligible (higher maximums for 2-, 3-, and 4-unit properties).  The Freddie Bulletin reconfirms its policy directing servicers to suspend foreclosures where the borrower may be eligible for a loan modification until the servicer determines whether the borrower is eligible for this or any other Freddie Mac workout program. The Fannie Announcement establishes a new HomeSaverTM Forbearance Program for borrowers who do not qualify for the Home Affordable Mortgage Program but are willing and able to make monthly payments of at least half of the monthly payment amount due. Servicers are instructed to work with borrowers during the 6 month forbearance period to identify a permanent foreclosure prevention alternative.