Tuesday, November 11, 2008

The Federal Housing Finance Admin Has a New Plan For Fannie & Freddie Troubled Mortgageholders

The Federal Housing Finance Administration, which was created with the Bailout of Giant Mortgage Losers Fannie Mae & Freddie Mac, has announced a "streamlined mortgage modification program."

From the FHFA Press Release:

"As housing prices have fallen, delinquencies on mortgages have tripled, not just for subprime and Alt-A, but also for prime mortgages. Foreclosures have increased almost 150% from two years ago."

"Today we are announcing a major program designed to greatly reduce preventable foreclosures with a simplified, streamlined loan modification program to get struggling homeowners into mortgages that they can afford. It is an achievable goal if homeowners, banks, mortgage servicers, investors, Fannie Mae and Freddie Mac all work together."

"Fannie Mae and Freddie Mac own or guarantee almost 31 million mortgages, about 58% of all single family mortgages."

THE PROGRAM IS TARGETING OWNERS WHO LIVE IN THEIR HOMES AND HAVE MISSED THREE PAYMENTS:

"The program creates a fast-track method of getting troubled borrowers to an affordable monthly payment where “affordable” is defined as a first mortgage payment, including homeowner association dues, of no more than 38 percent of the household’s monthly gross income."

"This affordable payment will be
achieved through a mix of reducing the mortgage interest rate, extending the life of the loan or even deferring payment on part of the principal."

[emphasis ours]

NOTICE THAT THERE IS NO MENTION HERE OF REDUCING THE AMOUNT OF THE LOAN...SO A HOMEDEBTOR IS STILL RESPONSIBLE FOR THE INFLATED PRICE. THERE'S JUST A LONGER AMOUNT OF TIME (40 instead of 30 years), OR LESS INTEREST TO PAY.

There's also an ambiguous sentence about what the mortgage servicer may do if it is unable to help the troubled borrower....

Read the entire Press Release.


Just yesterday, Fannie Mae alerted the government that it may need more than the $100 billion in funding pledged by the U.S. Treasury to stay afloat after reporting a record $29 billion loss, according to Bloomberg,

And this is Fannie Mae's take on National Housing Price Declines, according to the statement they just filed with the Securities and Exchange Commission:

"The deteriorating economic conditions and related government actions that occurred in the third quarter of 2008 have increased the uncertainty of future economic conditions, including home price movements. Therefore, while our peak-to-trough home price forecast is at the top end of the 15% to 19% range, there is increasing uncertainty about the actual amount of decline that will occur."

[emphasis ours]

According to CalculatedRISK, Fannie expects the decline to be more along the lines of 32% indicated by the Case-Shiller Index.

ON THE SAME TOPIC OF HELP FOR TROUBLED MORTGAGEHOLDERS:

Major Banks Which Have Mortgage Mod Programs in Place:

Citigroup is halting foreclosures for borrowers who live in their own homes, have decent incomes and stand a good chance of making lowered mortgage payments; it will also expand the program to include mortgages for which the bank collects payments but does not own.

Citi plans to help an additional 500,000 homeowners who are not currently behind on but on the verge of falling behind, about one-third of all mortgages that Citigroup owns by adjusting their rates, reducing principal or increasing the term of the loan.

JPMorgan Chase & Co has expanded its mortgage modification program to an estimated $70 billion in loans, or 400,000 customers.

Bank of America starting Dec. 1 will modify an estimated 400,000 loans held by newly acquired Countrywide Financial Corp. as part of an $8.4 billion legal settlement reached with 11 states in early October.

4 comments:

jason said...

Nice coverage. Looks like they took a few tips from Sheila Bair & the FDIC via the IndyMac mortgage modification program.

Anonymous said...

that does it. i'm going to circuit city's closing sale and buying a giant flat screen tv, a new computer, and all my christmas presents. then i won't be able to afford my mortgage for two months. so i'll throw a new year's party.

wheeeee!

and then i'll have my mortgage modified.

Montpellier said...

the only thing is: Sheila Bair panned it and boycotted the announcement ceremony. I think they tried to make it look like they were following her lead...and really, she hasn't exactly nailed it either.

This is a 'nothingburger', and will not have the desired impact. On NPR this AM, they estimated the plan would help perhaps in the hundreds of thousands, while millions are at risk - this plan is off by at least an order of magnitude.

Real C'ville - The Bubble Blog said...

Montpellier is right, as usual. The plan is way off. It's just a start, sure to be modified in, what, about 90 days?

Just like TARP--which can no longer really be called "TARP", Troubled Asset Relief Program, since today Henry Paulson has announced that Treasury won't buy up the mortgage-garbage-assets on banks' balance sheets. Instead, the $ is going to be used to inject capital into more banks (or entities that convince Treasury they're banks).

Sheila Bair wanted a more aggressive relief program, including one that changed the amount of principal owed, because the FDIC is running out of cash to rescue banks (which happens almost every Friday). With more foreclosures, more banks will go under.

The "streamlined" system will help for a short while...and then it will be revisited again and principals will be cut.

So anon? If we were you, we'd wait on getting delinquent.

(JUST KIDDING.)