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In news announcements this morning, Fannie Mae and Freddie Mac say they are working on a mass loan modification program. This program is designed to rework hundreds of thousands of delinquent mortgages. Loan modifications are a way to bring delinquent mortgages back to producing status from the lenders “toxic” mortgage pool. This came on the news that Citi Group was imposing a moratorium on most “new” foreclosures in an effort to help people stay in their homes.

I recently wrote a blog about the Hope for Homeowner (H4) program through FHA and generated a lot of discussion. It has always been my contention that the H4H program would be better served by a mandatory loan modification program. This may be another step in that direction.

Apparently, the program will be based on the experiment that has been underway with the FDIC and the loan portfolio from the former IndyMac Banking Group. One of the “problems” with loan modification is that the servicing company was not the actual investor in many cases and therefore could not do the loan modification. The FDIC has proved that this is not a problem as they are not receiving complaints from the investors and have done several thousand modification already.

It almost makes me feel like someone was listening to me. I have been saying that the best way to get through this mess was through loan modifications directly with the lenders. Now, maybe we have a chance of that happening. According to Fox Business News, the announcement from Fannie and Freddie are due by 2 p.m. EST. The Wall Street Journal says that the modification effort has the backing from regulators and the GSE.

ADDED at 1:30 p.m. PST: According to an article on CNN.com, to qualify for the modification, a person must:

1. Be at least 90 days late
2. Live in the Home
3. Prove Hardship
4. Payments cannot be adjusted to 38% of Income
5. No principal reduction (lower interest rate or longer term)
6. Loan must be owned by Fannie Mae or Freddie Mac. (about half of all mortgages)

Authored by Fred Chamberlin, a mortage loan consultant, Eugene/Springfield Oregon, 541-342-7576