Fannie Mae Announces 2MP Program and Updates for Forbearance and HAMP Policies

• 2MP Program. Effective immediately, if a borrower receives a permanent Home Affordable Modification Program (HAMP) modification on a first lien mortgage loan, Fannie Mae will require servicers of second lien mortgage loans on the same property that are owned by Fannie Mae or back Fannie Mae single-family mortgage-backed securities (MBS) to offer the borrower a "2MP" second lien mortgage modification. To receive a permanent 2MP modification:
  
  
  • borrowers must successfully complete a three- to four-month trial period plan, and
  • the second lien mortgage loan must have been originated on or prior to January 1, 2009.
  
  Please see Fannie Mae's Servicing Announcement SVC-2010-14 dated September 21, 2010 for additional details regarding loans that are eligible for modification under the 2MP program, potential provisions of any modification under 2MP, and other related matters.
  
  Prior to its permanent modification under 2MP, a second lien mortgage loan backing MBS must be removed from the related MBS trust. Because Fannie Mae's removal of a loan from an MBS trust has the same effect on the timing of certificate principal repayment as a borrower prepayment in full, the timing of principal repayments on your MBS certificates could be accelerated as a result of Fannie Mae's implementation of 2MP. Currently, there are approximately $20 million in outstanding MBS certificates that are backed by second lien mortgage loans. We cannot predict how many second lien mortgage loans will be modified under 2MP. Additionally, we do not anticipate that the implementation of the 2MP program will have a significant effect on the number of permanent HAMP modifications of first lien mortgage loans backing Fannie Mae MBS.

• Forbearance and HAMP Policy Updates. Effective immediately, Fannie Mae is initiating the following requirements for forbearance offered to borrowers:
  
  
  • Forbearance periods in excess of six months will require the written approval of Fannie Mae. (Previously, forbearances of up to twelve months could be granted by servicers without Fannie Mae approval.)
  • In the case of unemployed borrowers, servicers will be required to consider the appropriateness of forbearance alternatives before considering any permanent modification under HAMP.
  
  Generally, Fannie Mae's policy is to refrain from removing mortgage loans in a period of forbearance from our MBS trusts. (See our August 16, 2010 announcement.) We cannot predict what effect, if any, the foregoing changes will have on the number of mortgage loans that are in forbearance periods at any time. However, because removal of a delinquent loan from an MBS trust has the same effect on the timing of certificate principal repayment as a borrower prepayment in full, it is possible that the new requirements will affect the number of loans in forbearance, and thus the timing of principal repayments on your MBS certificates may be affected as well.

Please consult our June 1, 2009 MBS Prospectus for additional information regarding our trust agreement provisions and servicing practices regarding troubled loans, including loan modifications and purchases of delinquent loans from our single-family MBS trusts.

Certain statements in this announcement may be considered forward-looking statements within the meaning of the federal securities laws, including statements about the impact of the foregoing developments on the number of loans that are removed from MBS trusts and the timing of principal repayments on your MBS certificates. A description of factors that may cause actual results to differ materially from the expectations in these and other forward-looking statements can be found in our Annual Report on Form 10-K for the year ended December 31, 2009 and our reports on Form 10-Q and Form 8-K, filed with the SEC and available through the Investors page of our Web site at www.fanniemae.com and the SEC's Web site at www.sec.gov.

Investors may contact our Fixed-Income Securities Helpline at 1-888-BOND HLP (1-888-266-3457) if they have additional questions.

Originally published: 09/21/10