Fannie Mae takes another step to ease capital need
Fannie Mae, the largest provider of funding for U.S. residential mortgages, has extended forbearances for troubled homeowners in a move the company expects to ease stress on its capital.
The move allows temporary suspensions or reduced payments by borrowers for up to six months, up from four months, said Jason Allnutt, a vice president for credit loss management for Fannie Mae (FNM.N: Quote, Profile, Research) in Dallas.
Giving homeowners greater leeway will help Fannie Mae limit the costly process of purchasing bad loans out of the $2.5 trillion in mortgage-backed securities it guarantees. Under standard accounting rules, buying mortgages out of MBS trusts forces the company to revalue the loans at market levels, which last year boosted fair value losses sevenfold to $1.4 billion.
Fannie Mae is balancing the need to “keep people in their homes … with having to pull loans out of trust,” Allnutt said in an interview. “This is one of those changes that helps us in both ways.”
Longer forbearance for homeowners may give the government-sponsored enterprise more breathing room on capital as lawmakers and regulators pressure it to do more to stabilize the battered U.S. housing market. The program will complement other efforts by the GSEs, lenders and mortgage counselors to slow an epidemic in foreclosures that is threatening to push the U.S easy payday loans. economy into recession.
Heavy losses on loans purchased — whose values are determined based on the worst mortgage market in decades — and increased focus on loss mitigation have resulted in other new programs to keep borrowers in their homes. In February, Washington-based Fannie Mae announced it would begin offering unsecured loans to homeowners in arrears.
The HomeSaver advance and HomeSaver forbearance programs are bets that the loans can be “cured,” or fixed, faster and cheaper than through other loss-mitigation efforts. Such plans will work if servicers use the time to obtain more information from the homeowner, said Rick Smith, chief executive of Marix Servicing LLC in Phoenix, Arizona.
“Fannie Mae is trying to give the servicers as many tools as possible to help homeowners,” he said. But “if a servicer does not gather the financial information, then some plans will just delay the inevitable” foreclosure process and increase costs for investors, he said.