Loan Modifications Determining Eligibility with FDIC

by admin ~ December 1st, 2008.

The FDIC maintains that foreclosure prevention is a top priority for the financial watch-dog.  Mortgage servicing companies manage mortgage loans for other investors in most cases.  Many home loan servicers also manage Government Sponsored Enterprises, private investors owning securities collateralized by the mortgage loans and whole home loan investors. Each investor type has different standards for eligible loan modifications. The GSEs have authorized loss and mitigation programs for seriously delinquent home loans; however some home mortgages owned by the GSEs may be modified based on eligibility standards similar to those used for private investors. The GSEs recently announced the adoption of more streamlined modification plans that apply many of the features of the FDIC Mortgage Loan Modification Program model.  Many of the home loan modification programs are limited to 38% debt ratios and that eliminates nearly 70% of the existing homeowners who are currently delinquent on their first or second mortgages.

Home loans serviced for private investors are governed by servicing contracts which often contain a standard clause allowing the servicer to modify seriously delinquent or defaulted mortgages, or mortgages where default is “reasonably foreseeable.”  

Watch FDIC Loan Modification Video from Fox News>

Mortgage loans subject to these contracts are typically eligible for modification given:

• The loan is at least sixty days delinquent where the loan is considered one day delinquent on the day following the next home loan payment due date.

• Home foreclosure sale is not imminent and the borrower is currently not in bankruptcy, or has not been discharged from Chapter 7 bankruptcy since the loan was originated.

• The home loan was not originated as a second home or an investment property. Loans sold whole to individual investors often require a case-by-case approach. These mortgage loans are subject to both servicing and securitization contracts. The Appendix contains guidelines on how to evaluate whole loan servicing agreements.

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