Fannie Mae takes another step to ease capital need
April 2nd, 2008 | by admin |By Al Yoon
NEW YORK (Reuters) - Fannie Mae, the largest provider offunding for U.S. residential mortgages, has extendedforbearances for troubled homeowners in a move the companyexpects to ease stress on its capital.
The move allows temporary suspensions or reduced paymentsby borrowers for up to six months, up from four months, saidJason Allnutt, a vice president for credit loss management forFannie Mae (FNM.N: Quote, Profile, Research) in Dallas.
Giving homeowners greater leeway will help Fannie Mae limitthe costly process of purchasing bad loans out of the $2.5trillion in mortgage-backed securities it guarantees. Understandard accounting rules, buying mortgages out of MBS trustsforces the company to revalue the loans at market levels, whichlast year boosted fair value losses sevenfold to $1.4 billion.
Fannie Mae is balancing the need to “keep people in theirhomes … with having to pull loans out of trust,” Allnutt saidin an interview. “This is one of those changes that helps us inboth ways.”
Longer forbearance for homeowners may give thegovernment-sponsored enterprise more breathing room on capitalas lawmakers and regulators pressure it to do more to stabilizethe battered U.S. housing market. The program will complementother efforts by the GSEs, lenders and mortgage counselors toslow an epidemic in foreclosures that is threatening to pushthe U.S. economy into recession.
Heavy losses on loans purchased — whose values aredetermined based on the worst mortgage market in decades — andincreased focus on loss mitigation have resulted in other newprograms to keep borrowers in their homes. In February,Washington-based Fannie Mae announced it would begin offeringunsecured loans to homeowners in arrears.
The HomeSaver advance and HomeSaver forbearance programsare bets that the loans can be “cured,” or fixed, faster andcheaper than through other loss-mitigation efforts. Such planswill work if servicers use the time to obtain more informationfrom the homeowner, said Rick Smith, chief executive of MarixServicing LLC in Phoenix, Arizona.
“Fannie Mae is trying to give the servicers as many toolsas possible to help homeowners,” he said. But “if a servicerdoes not gather the financial information, then some plans willjust delay the inevitable” foreclosure process and increasecosts for investors, he said. Continued…
