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Fannie and Freddie's Flex Modification to Replace HAMP

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Government-sponsored enterprises, Fannie Mae FNMA and Freddie Mac FMCC , recently announced the new Flex Modification foreclosure prevention program, which was developed at the direction of the Federal Housing Finance Agency (FHFA).

This modification program has been designed to benefit families in America by reducing their monthly mortgage payments. Home buyers who take loans from these enterprises will likely get a mortgage payment reduction of 20%.

Accordingly, borrowers who are at least 60 days delinquent would be eligible. In certain situations, those who are current or less than 60 days delinquent would also be eligible.

Moreover, government's Home Affordable Modification Program (HAMP), which is slated to expire on Dec 31, 2016, will be replaced by this Flex Modification program.

FHFA said in a statement that the new program "was designed based on lessons learned from crisis-era loan modification programs to help borrowers stay in their homes and avoid foreclosures whenever possible."

Further, it said, "The Flex Modification also reflects input received over the course of extensive engagement with lenders, mortgage insurers, consumer advocates, and other stakeholders. By avoiding the high costs associated with foreclosures, the Flex Modification will result in significant savings for the Enterprises and taxpayers. And it will provide borrowers who face permanent hardships with a sustainable modification."

The new program will come into effect from Oct 1, 2017. In the interim period, the Standard and Streamlined Modifications will continue.

The GSEs mentioned that the "program was shaped by a white paper published in July 2016 by the U.S. Department of the Treasury in conjunction with the U.S. Department of Housing and Urban Development (HUD) and FHFA titled Guiding Principles for the Future of Loss Mitigation. It laid out five factors - accessibility, affordability, accountability, sustainability, and transparency - that should form the foundation of future loss mitigation programs."

Executive vice president of Freddie Mac's Single-Family Business, David Lowman said, "We're proud to announce the Flex Modification program, a carefully considered and transparent alternative for homeowners who want to avoid foreclosure in today's post-crisis mortgage environment."

Both Fannie Mae and Freddie Mac have significantly outperformed the Zacks categorized Mortgage & Related Services industry year to date.

A couple of stocks in the same space worth considering are PennyMac Financial Services, Inc. PFSI and Essent Group Ltd. ESNT .

PennyMac Financial has witnessed an upward earnings estimate revision of 9.8% for the current year, over the past 60 days. Also, its share price is up 21.1% year to date. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Essent Group carries a Zacks Rank #2 (Buy) and has witnessed an upward earnings estimate revision of 3.5% for the current year, over the past 60 days. Moreover, its share price is up 45.5% year to date.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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