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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

Living in a Bubble? Mortgage Crisis? Act Now to Avoid Foreclosure • Avoiding Foreclosure Takes More Than Hope --- • Consumers Fall Further Behind in Payments • House Democrats Seek Bankruptcy Rule Changes • Pending Home Sales Post Record Drop • Home Prices Plunge in October • Navigating the Mortgage Modification Maze • Mortgage Rates Reach 37-Year Low • Boomers Facing Tough Social Security Choices • Is It Safe to Buy a House? • Mortgage Modification Meltdown • Mortgage Defaults Still Rising • Mortgage Rates Take Another Sudden Drop • Fed Slashes Rates to Near Zero • Consumer Prices Plunge in November • Home Values May Fall More in 2009 • Americans' Net Worth Plunges Nearly $3 Trillion • Surge in Mortgage Applications Doesn't Last • Pending Home Sales Slide in October • Get Your Mortgage Rate Lock Ready • Modifying Mortgages Isn't Slowing Default Rate • Mortgage Delinquencies, Foreclosures Surge • Mortgage Applications Surged 112 Percent Last Week • GAO Calls for Better Bailout Oversight • Homes Lose More Value In Third Quarter • Home Prices Post Record Decline • Fed Throws $800 Billion Lifeline to Consumers • Existing Home Sales Drop in October • When in Doubt, Leave Nothing Out • Fannie Mae and Freddie Mac Suspend Foreclosures • Consumer Prices Plunge in October • Paulson Rejects Bailout Money for Detroit • Another Glimmer of Hope in The Housing Market • Buyers' Beware Market • FDIC Backs More Aggressive Loan Modification Plan • Housing 2009 Forecasts Mixed, But Mostly Grim • Foreclosures Up Five Percent in October • Feds Shift Gears On Bailout, Puts Focus On Consumers • More Homeowners Under Water in Third Quarter • Feds Mount New Effort to Help Struggling Homeowners • Lenders Embrace Workouts for Struggling Homeowners • Obama Can't Quickly Raise Homebuyers' Hopes • At Last: Bailout Trickling Down to Struggling Homeowners • New Home Sales Rise in September • How to Appeal Your Property Tax Bill • Existing Home Sales Rise in September • Administration Considers More Help for Homeowners • Foreclosure Activity Drops in September • Southern California Home Sales Surge 65 Percent in September • HOEPA: New Hope for Outlawing Abusive Mortgages • FDIC Chief: Not Enough Help for Homeowners --- • 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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