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HomeSaver a Success

Fannie Mae servicers made 17,900 HomeSaver advances to seriously delinquent borrowers in the second quarter and substantially reduced the company's purchases of bad loans out of its securitized mortgage pools.

The mortgage giant purchased 4,600 seriously delinquent loans out of its mortgage-backed securities, down from 10,600 seriously delinquent loans in the first quarter.

Fannie executives hope this new loss mitigation tool - HomeSaver Advance - will save the company hundreds of millions of dollars because it can fix the loans in the pool without purchasing the loans and recognizing a loss.

In the second quarter, the unsecured HomeSaver loans helped the mortgage giant reduce its fair value losses on loan purchases to $494 million, down from $706 million in the previous quarter.

"We expect HomeSaver Advance to continue to reduce the number of delinquent loans that we otherwise would have purchased from our MBS trusts for the remainder of 2008," Fannie said in a securities filing.

In April, servicers began offering delinquent borrowers advances of up to $15,000 to cover missed payments, escrow advances, homeowner's association dues and even late fees so borrowers can resume timely payments.

The idea is to allow borrowers to catch up on their payments since they have resolved the reason for the delinquency, such as finding a new job.

HomeSaver Advance is a 15-year personal loan with a 5% interest rate, but the homeowner does not have to pay interest or principal for the first six months. The average size of a HomeSaver Advance was $7,100.

As of June 30, approximately 59% of the first-lien mortgage loans associated with HomeSaver Advance were current, which Fannie considers very positive for such a new program. "Generally it takes at least 18 to 24 months to assess the ultimate reperformance of a delinquent loan," said Fannie spokeswoman Amy Bonitatibus.

Servicers that arrange a HomeSaver Advance currently are paid a $600 fee. But Fannie is proposing to change the incentive fee structure so the servicer is paid an initial incentive of $200 and an additional $500 after the borrower makes three consecutive timely payments.

Meanwhile, Fannie reported a $2.3 billion loss in the second quarter that included $1.3 billion in credit losses.

The secondary market agency noted credit losses jumped 42% from the first quarter and blamed higher defaults and sharp home price declines. Fannie executives particularly noted the deterioration in its $310 billion alt-A portfolio was responsible for 50% of the credit losses.

Company executives warned that they are "ramping up" default reviews to pursue recoveries from alt-A lenders.

Fannie also plans to open offices in California and Florida to better manage sales of its real estate-owned. "Finally, we are evaluating various proposals we have received from third parties involving the sale of properties in bulk transactions," the company said.

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