Fannie Mae has taken a series of steps to make the loan modification process simpler for servicers. The new program also aims to catch borrowers earlier in the delinquency cycle.

The key change which becomes effective with new MBS pools allows for removal of a loan from a pool once a loan is delinquent 30 days. Existing agreements do not allow for removal until a loan is 120 days delinquent. Additional changes allow for loan modifications in existing pools if default is reasonably foreseeable. No delinquency need have occurred. Also, repayment and forbearance horizons have been pushed out from 6 to 12 months and 18 months to 36 months respectively.

It would seem that taken together with other actions, the predictability of MBS securities is compromised by these actions. While they may make sense, assuming that you believe they will work for the borrower and have some positive impact on the economy, in these time, the likelihood is they will diminish investors’ appetite for mortgage backed securities. It’s one more short-term fix that may prove quite expensive in the long run.

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