Fannie Mae and Freddie Mac, the nation’s two largest mortgage holders, have announced that they’re temporarily suspending evictions and foreclosures during the holidays, reports BusinessWeek (“Freddie Mac and Fannie Mae Planning a Foreclosure Holiday,” Nov. 20, 2008).

The suspensions — to take place between Nov. 26, 2008 and Jan. 9, 2009 — apply to borrowers living in single-family homes, and are a temporary “fix” until the mortgage giants work out the details of a new streamlined loan modification program.

Formulated as a way to help certain homeowners avoid foreclosure, the streamlined modification program is being promoted by the federal government which took over Fannie Mae and Freddie Mac in September, and is set to go into effect on December 15. The program centers around the two mortgage companies, which between them own or back about 31 million mortgages worth a combined $5 trillion.

The Streamlined Modification Program: Who Qualifies and How it Works

The streamlined modification program is targeted at high risk borrowers whose mortgage loans are owned by Fannie Mae and Freddie Mac:

• Who are at least 90 days late on their mortgage payments

• Who live in the home for which the mortgage was taken

• Who owe at least 90 percent of their home’s current value

• Who have not filed for bankruptcy

Loan servicers will work with these high risk borrowers to bring down their monthly mortgage payments below 38 percent of their monthly household income by reducing the mortgage interest rate, extending the term of the loan, or even deferring payments on a portion of the principal. Interest rates could be lowered for five years and then raised to a predetermined level, and loan terms could be extended from the standard 30-year mortgage to 40 years.

Thousands of Borrowers to Benefit

“Until the streamlined modification program is fully implemented, we felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent a foreclosure have an opportunity to stay in their homes,” Fannie Mae President Herb Allison said.

Fannie Mae and Freddie Mac will partner with foreclosure attorneys and servicers to contact more than 16,000 borrowers who would be affected by foreclosures during this holiday season.

Freddie Mac CEO David Moffett said “Freddie Mac is on track to help three out of every five troubled borrowers with Freddie-Mac-owned loans avoid foreclosure this year.”

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