Magazine article Mortgage Banking

Moody's Report on FDIC, FHA Loan-Modification Programs

Magazine article Mortgage Banking

Moody's Report on FDIC, FHA Loan-Modification Programs

Article excerpt

Although there is promising potential in two separate government loan-modification programs recently rolled out by the Federal Deposit Insurance Corporation (FDIC) and Federal Housing Administration (FHA), both programs still require some tweaking, according to a report by Moody's Investors Service, New York.

The Moody's report--The Impact of FDIC's and FHA's Mortgage Loan Rescue Programs on RMBS Loss Expectations--notes that the FDIC's new loan-modification program may, if successful, eventually reduce cumulative losses for mortgage loans underlying U.S. residential mortgage backed-securities (RMBS).

Another program--FHA's HOPE for Homeowners ([H.sub.4]H)--could also benefit some homeowners and moderately reduce severities on loans that default, said Moody's.

The FDIC program, rolled out in November, is intended to increase the number of modifications of existing mortgages in order to provide financially stressed borrowers with a more affordable mortgage payment. According to the FDIC, this can be achieved by providing the industry with a streamlined framework with two key incentives: a loss-sharing arrangement for existing investors and mortgage lenders with the U.S. government, possibly through the Troubled Asset Relief Program (TARP); and a $1,000 stipend per modification for servicers.

[H.sub.4]H allows borrowers who are at risk of defaulting on their existing mortgage loans to refinance into a new FHA-insured mortgage. …

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