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Feds Mount New Effort to Help Struggling Homeowners

Fannie Mae, Freddie Mac will offer reduced payments, new terms

By Mark Huffman
ConsumerAffairs.com

November 11, 2008

Mortgage Crisis? Act Now to Avoid Foreclosure • Avoiding Foreclosure Takes More Than Hope --- • Home Prices Fall, But News Is Less Bad For Homeowners • Marketing Analysis Suggests Housing Bottom • Mortgage Rates Dip As Inflation Fears Ease • Have Mortgage Rates Hit Bottom? • Ex-Countrywide CEO Faces Fraud Charges • Pending Home Sales Surge in April • Foreclosure Starts Hit 1 Million For the Year • Mortgage Delinquencies At Record High • Existing Home Sales Rise in April • U.S. Home Values Now 32 Percent Below Their Peak • Bankruptcy Not Helping People Keep Their Homes • Home Values Plunge 14 Percent In First Quarter • One In Five Homeowners Underwater • Pending Home Sales Turn Around In March • Senate Defeats Mortgage 'Cram Down' Bill • Mortgage Rates Keep Falling • Home Sales Fall in March • Home Prices Show Surprising Gain in February • Foreclosures Up 9% in First Quarter • Southern California Home Sales Up Again in March • Mortgage Applications Rise Sharply • Obama Administration Targets Mortgage Fraud • Homeowners Still Behind On Modified Mortgages • Consumers Fall Further Behind on Loan Payments • Pending Home Sales Show Some Life • Home Prices Down To 2003 Levels in January • Fed Action Spurs Refinance Frenzy • Existing Home Sales Jump Five Percent in One Month • California Authorities Arrest "Loan Modification" Scam Artists • Southern California Home Sales Up Again • Loan Modifications Can Reduce Foreclosures, Study Says • Scammers Use Forged Bank Letterhead to Con California Consumers • Foreclosure Activity Up Six Percent in February • States Battle Feds To Enforce Lending Laws • Mortgage Delinquencies Continue to Climb • Obama Begins Mortgage Rescue Program • One Of Five U.S. Mortgages Under Water • Florida Court Blocks Loan Modification Company's Fees --- • More ...

After considerable prodding, the federal government is coming to the aid of millions of struggling homeowners whose mortgages are held by Fannie Mae and Freddie Mac, the federally-backed agencies that recently received a $100 billion infusion of tax money. They own or guarantee nearly half of all U.S. mortgages.

The plan announced today closely dovetails with the approach advocated by Federal Deposit Insurance Corporation (FDIC) chair Sheila Bair. It would offer reduced monthly payments to homeowners who face foreclosure and are spending more than 38 percent of their income on mortgage payments.

The "Streamlined Modification Plan," or SMP, which is an expansion of what many lenders are already doing, will be implemented by December 15, 2008.

"This is an important effort by the mortgage industry to help homeowners," said Faith Schwartz, HOPE NOW's executive director. "This is a big step forward that will make it easier to modify loans for the most at-risk homeowners so they will be able to avoid foreclosure and stay in their homes."

Parts of the program have been tried out at IndyMac Federal, the formerly independent California lender seized by the FDIC earlier this year.

Federal agencies "relied heavily on the IndyMac model in developing this new protocol," said Treasury Interim Assistant Secretary for Financial Stability Neel Kashkari. "With such broad adoption, this new protocol will be a standard for the industry to quickly move homeowners into long-term sustainable mortgages."

The assistance program is the latest in what critics say has been a piecemeal approach to the spiraling foreclosure crisis. The HOPE NOW Alliance, a conglomeration of industry and government organizations, had earlier recommended voluntary efforts to lenders, with only slight success.

Large private lenders including Citigroup, Bank of America and JPMorgan Chase today said they have devised new "workout" programs for struggling homeowners.

Critics said the election of Barack Obama and the expansion of Democrats' hold on Congress helped to build a fire under private lenders and convinced them to sign onto the program announced today.

"This idea of bringing mortgage companies to the table with mild political pressure and hope that they will aid borrowers has not worked and I hope today's program goes further," John Taylor of the National Community Reinvestment Coalition, a group that advocates for troubled borrowers, said.

Economists have left no doubt that simply propping up lenders was not going to bring the crisis to an early end.

"If housing doesn't get stabilized, it's really going to continue to bleed the economy,'' said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania.

To learn more about the SMP, view the fact sheet.

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