WASHINGTON (CN) – Home loans reorganized under the Home Affordable Mortgage Program can be carried on the books of banks, and other organizations insured by the Federal Deposit Insurance Corporation, with a 50 percent risk weighting, as if the original loan had never been modified. The June 30 rule establishing the program has been adopted as final with changes clarifying that the 50 percent risk factor applies to the 90-day trial modification as well as the permanent modification.
The Home Affordable Mortgage Program was established to promote sustainable loan modifications for homeowners at risk of losing their homes to foreclosure. The program allows homeowners to obtain more affordable mortgage payments.
Before June 30, the conditions that lead homeowners to default on their home loans, like late, missing or erratic payments, or drastic changes in their credit rating, would have required lenders to carry the loans at a 100 percent risk factor. The 50 percent risk weight allows banks to lend money that otherwise would have to be held in reserve to meet risk-based capital reserve requirements.
The financial agencies adopting this rule are the Office of the Comptroller of the Currency, the Treasury Department, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Treasury Department’s Office of Thrift Supervision.