WASHINGTON — A loss mitigation program that Fannie Mae pioneered and is now scaling back turned out to have an extremely high redefault rate.

Fannie launched HomeSaver Advance in February 2008 as a way to help homeowners catch up with mortgage payments and allow the government-sponsored enterprise to avoid the expense of purchasing nonperforming loans out of securitized pools.

Delinquent borrowers who had landed a new job or resolved other problems that got them into trouble could qualify for small personal loans of up to $15,000 to cover any arrearage.

No payments are required on the unsecured loans for the first six months so that homeowners could concentrate on resuming their regular monthly mortgage payments.

The Federal Housing Finance Agency said in a report to Congress last week that its examiners had found that 70% of the borrowers had redefaulted on their first mortgage in the first 3,300 HomeSaver Advance transactions Fannie servicers completed in early 2008.

The high redefault rate "calls into question the program's assumption that borrowers have the capacity to make payments going forward," the agency said.

A representative for the FHFA, which is the conservator for Fannie and Freddie Mac, said Fannie "is de-emphasizing HomeSaver Advance and focusing attention on the Making Home Affordable modification program."

Fannie said loan modifications have taken preference over the HomeSaver Advance program.

"Given the depth and scope of Making Home Affordable, we anticipate a decrease in HomeSaver Advance volumes," Fannie spokeswoman Amy Bonitatibus said.

Nevertheless, the company maintains that HomeSaver Advance "continues to be a viable foreclosure prevention solution for borrowers facing a temporary hardship."

FHFA data shows that Fannie workouts involving loan modifications exceeded advances starting in January. The numbers indicate that HomeSaver was the preferred workout tool in the second half of 2008.

Fannie made 71,000 HomeSaver Advances in 2008 and 20,400 in the first quarter of this year, with an average balance of $7,100.

The GSE's first-quarter financial report, filed on May 8, showed that it had $516 million in HomeSaver Advances on its books as of March 31 after taking a $115 million chargeoff.

The advances amortize over 14.5 years and have a 5% interest rate.

The first-quarter report also said the program had a high redefault rate.

"Approximately 40% of the first-lien mortgage loans associated with HomeSaver Advances during the first nine months of 2008 were less than 60 days past due or had paid off as of six months following the funding date," Fannie said in the filing.

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