Finance Globe

U.S. financial and economic topics from several finance writers.
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Fannie and Freddie Suspend Foreclosures for the Holidays

Fannie Mae and Freddie Mac announced yesterday that they have suspended foreclosure and eviction proceedings through the holiday season for owner-occupied single family homes, in an effort to help more troubled homeowners work out a solution with their lenders to keep their homes. Freddie Mac announced they would also delay foreclosure and eviction proceedings on owner-occupied 2-4 unit residences.

The two government-sponsored enterprises (GSEs) have instructed their foreclosure attorneys to contact troubled homeowners as soon as possible to notify them of the temporary suspension, which remains in effect from November 26, 2008 through January 9, 2009.

Evictions and foreclosures for GSE-sponsored mortgages will be halted during that period as long as the foreclosure attorney can make contact with the homeowner and establish that they still occupy the home. If they find the home to be vacant, then they will proceed with a foreclosure sale.

Fannie and Freddie plan to use this time to work with mortgage servicers to help them implement the Streamlined Modification Program scheduled to launch on December 15, 2008. By delaying the foreclosures and evictions until the start of the year, they hope that more borrowers will be able to benefit from the program.

The GSEs estimate that the foreclosure/eviction suspension will affect about 10,000 borrowers of Fannie Mae-sponsored mortgages and 6,000 borrowers of Freddie Mac-sponsored mortgages. Fannie and Freddie are working together with the Federal Housing Finance Authority (FHFA), HOPE Now, and 27 mortgage servicers to implement the program.

According to Fannie Mae, "The streamlined modification program is aimed at the highest risk borrower who has missed three payments or more, owns and occupies the primary residence, and has not filed for bankruptcy. The program creates a fast-track method for getting troubled borrowers into an affordable monthly payment through a mix of reducing the mortgage interest rate, extending the life of the loan or even deferring payments on part of the principal. Servicers have flexibility in the approach, but the objective is to create a more affordable payment for borrowers at risk of foreclosure."

The loan modifications are aimed at reducing a troubled borrower's total monthly housing payment (Principal, interest, taxes, insurance, HOA or condo fees, and capitalized past due payments) to under 38% of their monthly income. (This is still quite a high percentage of to debt-to-income, but it can be manageable for those who put a high priority on keeping their home, and are disciplined in managing their financial expenditures and obligations in the future.)

This year, Freddie Mac says they expect to workout a successful solution for as many as 84,000 of the 124,000 delinquent Freddie Mac-owned mortgages. Fannie Mae says that their mortgage servicers are prepared to work with troubled borrowers during this suspension period, even if previous attempts at a workout were unsuccessful. Troubled borrowers are urged to contact their lenders to discuss workout solutions, even if they don't feel they are in immediate danger of foreclosure.

As the nation's housing market struggles with a historically high rate of mortgage delinquencies - about 6.4% for 2008's second quarter, Fannie Mae also encourages non-GSE mortgage servicers to work with troubled homeowners "to bolster our collective efforts to stem the foreclosure crisis."

Freddie Mac Chief Executive Officer David M. Moffett said yesterday, "By working closely with FHFA and our servicers, Freddie Mac is on track to help three out of every five troubled borrowers with Freddie Mac-owned loans avoid foreclosure this year. Today’s announcement builds on this momentum and provides a new measure of certainty to many of these families during the holidays."

Fannie Mae and Freddie Mac own or guarantee nearly half of the nation's $12 trillion mortgages. The two GSEs were seized and placed in conservatorship by the U.S. government in early September when it became evident that they needed help (taxpayer money) to stay afloat.

Failure of the GSEs would have been catastrophic to not only the mortgage market but to the global economy. Fannie Mae and Freddie Mac's exposure to risky sub-prime loans threatened their very reason for existence - to buy or guarantee loans made by mortgage originators to free up capital so that it would be possible to continue lending and keep home-ownership affordable for Americans.

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Wednesday, 08 February 2023

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