Fannie Mae, Freddie Mac loan modifications reach a pandemic high

Modifications of loan terms for financial hardships at Fannie Mae and Freddie Mac in April topped 5,000 for the first time since the coronavirus arrived in the United States, according to the Federal Housing Finance Agency’s latest monthly report.

The number of mortgages modified by the two government-sponsored enterprises rose to 5,271 from 4,849 in March and 4,528 in April 2020, the FHFA’s Foreclosure Prevention and Refinance report shows. Monthly modifications at the GSEs were last this high in March 2020 when they totaled 5,570.

The return of more normal modification levels for two key players in the housing finance market could be a lead-up to the wave that’s been anticipated since the coronavirus arrived, and will be key to maximizing the number of distressed borrowers who can keep their homes.

“If they don’t come up with a modification plan, people with equity may decide to sell,” said Selma Hepp, deputy chief economist at CoreLogic, commenting on options for distressed borrowers. Also, a small share of them who lack equity may risk eventual foreclosure.

Agreements with mortgage companies to sell homes can be preferable to foreclosures. They leave credit records intact, take less time and may leave distressed borrowers with some profit if the value of their home is higher than the amount they owe, something that could be increasingly likely as home values continue to rise.

To be sure, mods make up a small portion of home retention options being taken at the GSEs and are vastly outnumbered by a shrinking number of forbearance plans. Deferral options that allow borrowers that had suspended their payment to resume their normal obligations and add missing payments to the end of the loan also remain far more common than modifications. Payment deferrals at the GSEs rose very slightly in April to 55,970 from 55,570 in March.