Banks and thrifts that support the Treasury Department’s loan modification program are going to get a break under the final Basel III capital rules that the Federal Reserve Board approved on Tuesday.
Most modified or restructured single-family loans generally fall into the 100% risk-weight category under the new capital regime, but not modifications that meet the requirements of the Home Affordable Modification Program.
The banking agencies “believe that treating mortgage loans modified pursuant to HAMP in this manner is appropriate in light of the special and unique incentive features of HAMP and the fact that the program is offered by the U.S. government to achieve the public policy objective of promoting sustainable loan modifications for homeowners at risk of foreclosure in a way that balances the interests of borrowers, servicers and lenders,” the final rule says.
The HAMP mods generally provide troubled homeowners with greater mortgage payment relief than propriety mods and HAMP mods have lower redefault rates than propriety mods.
In the first quarter Hope Now servicers completed nearly 203,000 proprietary mods and 42,775 HAMP mods.
The GSE regulator recently reported that Fannie Mae and Freddie Mac servicers completed 63,765 loan modifications in the first quarter, including 14,800 HAMP mods.
Large banks are expected to start implementing the new risk based capital in January 2014 and smaller institutions are required to start implementation in January 2015.
The Treasury Department recently extended the HAMP program through 2015.
