Senators Ask for Foreclosure Delay on Fannie, Freddie Loans
Friday, September 12, 2008
Four Democratic senators pressed the Federal Housing Finance Agency (FHFA) and the newly tapped chiefs of Fannie Mae and Freddie Mac yesterday to delay foreclosures by at least 90 days on all home loans owned by the two companies. The freeze would serve as a “stopgap measure” until the two companies can perform wholesale loan modifications to move millions of troubled borrowers into more affordable mortgages, the senators said.
The four senators – Sherrod Brown of Ohio, Bob Casey of Pennsylvania, Robert Menendez of New Jersey, and Charles E. Schumer of New York – urged the conservator of the two mortgage giants to follow in the footsteps of the Federal Deposit Insurance Corporation (FDIC) when it took over IndyMac Bank. The FDIC immediately enacted a temporary freeze on all foreclosures connected to mortgages IndyMac owned, while it implemented an aggressive loan modification program for the bank's delinquent and at-risk borrowers.
Modifying at-risk mortgages benefits both the families facing foreclosure and maximizes the value of the mortgage asset, the senators argued. According to FDIC Chairwoman Sheila Bair, a foreclosed mortgage pays $0.30 on the dollar, whereas a mortgage that is modified to be affordable for the homeowner typically pays $0.90 on the dollar, while allowing families to remain in their homes.
“A more proactive change in Fannie Mae and Freddie Mac policies regarding loan modifications would not only help homeowners and the housing market more generally, but would benefit the firms, and could limit any costs to the federal government by transforming non-performing loans into performing assets with stable, long-term cash flows,” the senators said.
In their letter to the FHFA, the senators noted that their forbearance recommendation should be employed only for those mortgages held in their entirety by Fannie Mae and Freddie Mac. These loans, they said, can be modified with little or no limitation and would provide immediate relief to the borrowers. This means that the foreclosure relief would not apply to bonds backed by mortgages in Fannie Mae's or Freddie Mac's portfolios. The two companies have either purchased or guaranteed about $5.4 trillion in mortgages, including mortgage-backed securities. Of that, Fannie Mae owns only $342 billion in “whole” loans, and Freddie Mac holds $93 billion in fully-owned loans.
To view the senators' full announcement and FHFA letter, click here.
The four senators – Sherrod Brown of Ohio, Bob Casey of Pennsylvania, Robert Menendez of New Jersey, and Charles E. Schumer of New York – urged the conservator of the two mortgage giants to follow in the footsteps of the Federal Deposit Insurance Corporation (FDIC) when it took over IndyMac Bank. The FDIC immediately enacted a temporary freeze on all foreclosures connected to mortgages IndyMac owned, while it implemented an aggressive loan modification program for the bank's delinquent and at-risk borrowers.
Modifying at-risk mortgages benefits both the families facing foreclosure and maximizes the value of the mortgage asset, the senators argued. According to FDIC Chairwoman Sheila Bair, a foreclosed mortgage pays $0.30 on the dollar, whereas a mortgage that is modified to be affordable for the homeowner typically pays $0.90 on the dollar, while allowing families to remain in their homes.
“A more proactive change in Fannie Mae and Freddie Mac policies regarding loan modifications would not only help homeowners and the housing market more generally, but would benefit the firms, and could limit any costs to the federal government by transforming non-performing loans into performing assets with stable, long-term cash flows,” the senators said.
In their letter to the FHFA, the senators noted that their forbearance recommendation should be employed only for those mortgages held in their entirety by Fannie Mae and Freddie Mac. These loans, they said, can be modified with little or no limitation and would provide immediate relief to the borrowers. This means that the foreclosure relief would not apply to bonds backed by mortgages in Fannie Mae's or Freddie Mac's portfolios. The two companies have either purchased or guaranteed about $5.4 trillion in mortgages, including mortgage-backed securities. Of that, Fannie Mae owns only $342 billion in “whole” loans, and Freddie Mac holds $93 billion in fully-owned loans.
To view the senators' full announcement and FHFA letter, click here.
