The federal bank and thrift agencies Friday clarified the capital treatment of mortgage loans modified under the administration’s plan to reduce foreclosures.
The regulators’ interim final rule which gives companies 30 days to comment says that after a modification institutions can hold the same amount of capital against a specific type of loan that was required before the workout.
The rules said that the modification must follow the framework of the Treasury Department’s program.
For example, a mortgage risk weighted at 50% before the modification can receive the same treatment afterward.
Likewise, mortgages risk weighted at 100% can be weighted the same following a modification.
The Making Home Affordable Program, for which the Treasury Department announced guidelines in March and April, requires servicers to reduce payments for troubled loans so they meet a 38% debt-to-income ratio.
Treasury will then subsidize further reductions to ultimately achieve a 31% ratio. For each successful modification, servicers will receive $1,000.
