Alert November 18, 2008

FDIC Proposes Mortgage Loan Modification Program

The FDIC issued a proposal to promote affordable mortgage loan modifications. In order to promote modifications, the FDIC will pay servicers $1,000 for the cost of modifying each loan and share up to 50% of the losses incurred on loans that subsequently “re-default.” The program requires (1) eligible loans be secured by owner-occupied property, (2) the borrower make at least six payments on the modified loan before loss sharing is available, (3) modified loans must result in a 31% borrower debt-to-income ratio, (4) participating servicers must conduct a systematic review of their portfolio to identify loans suitable for modification, (5) government loss sharing will be decreased as the loan-to-value ratio rises, and (6) no loss sharing will be available if the loan-to-value ratio exceeds 150%, if the new monthly payment under the modified loan is not at least 10% less, or if eight years has passed since the modification. Click here for the proposal.