News Article

What Banks and Mortgage Lenders Need to Know About the Federal Government's Comprehensive Loan Modification Program

March 10, 2009

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BACKGROUND

On February 18, 2009, President Obama announced the Homeowner Affordability and Stability Plan to help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. As part of this plan, the Treasury Department announced a national modification program aimed at helping 3 to 4 million at-risk homeowners - both those who are in default and those who are at imminent risk of default - by reducing monthly payments to sustainable levels. The loan modification part of the Plan is backed by $75 billion from the Treasury. On March 4, 2009, the Treasury issued uniform guidance for loan modifications across the mortgage industry under the Home Affordable Modification Program ("HMP"). Fannie Mae also issued its HMP guidelines, Ann. 09-05: "Introduction to the Home Affordable Modification Program, HomeSaver ForbearanceTM, and New Workout Hierarchy," on March 4, 2009. Fannie Mae and Freddie Mac also issued guidance on the Home Affordable Refinance Program for GSE loans, which is a separate program designed to provide refinancing to borrowers owning "underwater" valued homes.

Treasury stated that all banks that accept Financial Stability (f/k/a TARP) funds in the future will be required to implement the HMP. Thus, any institution intending to accept or even considering the acceptance of Financial Stability funds in the future should understand the burdens and benefits of mandatory HMP participation. In addition, federal banking regulators wholeheartedly support the HMP and will encourage depository institutions that did not or will not accept TARP or Financial Stability funds to adopt the same procedures and guidelines. The Treasury established a dedicated website, www.financialstability.gov, to keep borrowers and industry participants apprised of the HMP and related developments.

Any bank or non-bank mortgage lender that is an approved Fannie Mae or Freddie Mac seller-servicer will be required to modify eligible loans sold to the GSE's that were originated prior to January 1, 2009. Importantly, banks and other mortgage lenders will need to evaluate whether to voluntarily participate in the Program. This Client Alert discusses significant issues facing such institutions or companies.

To read the full Client Alert regarding the Federal Government's Comprehensive Loan Modification Program, click here.

If you have any questions about this program or another financial services matter, please contact a member of the Capital Markets Practice Group at Womble Carlyle Sandridge & Rice. Readers are urged to consult with their regular contacts at Womble Carlyle or Donald Lampe at 704-350-6398.