A default prevention effort.

Author:Shelton, Larry W.
Position:Federal Home Loan Mortgage Corp.'s loan modification program

Newspaper headlines and recent employment trends highlight the dramatic changes now taking place in the American economy. Corporate downsizing and work force reductions mean that many qualified workers have - and will - face the loss of their jobs and invariably some interruption of income.

What's more, a sizable number of Americans recently have suffered some upheaval in their jobs due to natural circumstances ranging from floods to earthquakes and hurricanes. In some instances, these natural disasters have caused substantial damage to homes, imposing further economic hardship on some homeowners.

What can be done to prevent these unexpected financial setbacks from causing the loss of someone's home?

That's a question Freddie Mac has decided to directly address. Early last year the company created a loan modification program that allows borrowers who are seriously delinquent in their mortgage payments to apply for a chance to restructure their existing loans. This means that borrowers who already are seriously delinquent or in jeopardy of losing their homes due to a curtailment of income can get some help.

Freddie Mac created this effort to allow borrowers to bring their loans current and possibly reduce their monthly payments. We decided to take this step when it became clear that some borrowers found themselves unable to make their payments because of unfortunate economic circumstances. However, it's important to understand that this is no quick-fix refinance program. Rather, our efforts are designed to help keep borrowers in their homes by finding long-term solutions to their delinquency problems.

We view this new approach as a true win-win situation. Although recent economic data show that national delinquency rates have dropped, overdue mortgage payments are still a serious and costly problem for mortgage servicers. When a loan goes into default, many people suffer. But when a borrower's position as a homeowner is maintained, the benefits spread throughout the community.

With the active use of Freddie Mac's loan modification program, not only will homeowners be more secure in their ownership positions, but fewer seriously delinquent mortgages will go into foreclosure. This means servicing costs will be reduced and more income-producing mortgages will be retained in portfolios.

What's more, the program can minimize potential losses from foreclosure, help reduce exorbitant default and remarketing expenses, cut through judicial...

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