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11/11/2008 - U.S. Offers Plan to Modify Home Loans

In an attempt to keep struggling homeowners from losing their houses, federal officials today announced a simpler and quicker procedure for modifying loans held by mortgage giants Fannie Mae and Freddie Mac and expressed hope that it would be adopted by the entire industry.

The plan targets people who have missed three or more mortgage payments, live in the home and have not filed for bankruptcy protection.

The goal is to make the payments more affordable -- defined as no more than 38% of a household's monthly gross income -- by reducing the interest rate, deferring payments on part of the principal and extending the term of the loan to as many as 40 years.

Struggling homeowners who don't meet the guidelines would be eligible for a customized review, although anyone who purposely defaults on a loan to get it modified would be disqualified, officials said.

"Stabilizing our financial system will require not only strengthening our financial institutions so they are able to lend to our communities, but also helping homeowners avoid preventable foreclosures," Neel Kashkari, assistant Treasury secretary for financial security, said at a news conference to announce the plan.

"We must explore all tools to help homeowners and increase the availability of mortgage finance," he said.

The plan will begin by Dec. 15 and aims to reduce the paperwork and other documentation required to rework mortgage loans, said James B. Lockhart, director of the Federal Housing Finance Agency, which is the conservator running Fannie Mae and Freddie Mac after the government took them over in September. To encourage mortgage services to participate, they will receive $800 for each loan that is modified. The FHFA has more information on the plan here.

Source LA Times 11/11/2008

Critics say new federal mortgage plan not enough

The biggest problem with the plan is that Fannie Mae and Freddie Mac control relatively few of the types of loans that have driven defaults to crisis proportions. Even if the companies successfully restructured all of their troubled loans, more than three million Americans still stand to lose their homes this year and next. As long as homes are being lost by the millions, house prices will continue to drop, making Americans poorer, the financial system shakier and the economy weaker.

Source New York Times 11/13/2008


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