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.

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