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12 Nov 08 Another Foreclosure Rescue Plan Announced

Having a hard time with your mortgage payments?

Once again, the government has offered another mortgage restructuring plan to help troubled homeowners. This loan workout plan focuses on Fannie Mae and Freddie Mac owned home loans. Fannie and Freddie own or guarantee nearly 31 million U.S. mortgages, nearly six of every 10 outstanding. But they have far lower overall delinquency rates than other lenders — under 2 percent.


Sheila Bair, chairman of the Federal Deposit Insurance Corp. (FDIC), said the plan “falls short of what is needed to achieve wide-scale modifications of distressed mortgages.”


With the government spending billions to aid distressed banks, “we must also devote some of that money to fixing the front-end problem: too many unaffordable home mortgage loans,” Bair said in a statement.


Democrats on Capitol Hill aren’t satisfied, either. “When the home loan is chopped up into a million pieces and any investor can block a modification from happening, a program like this will only scratch the surface of the mortgage crisis,” said Sen. Charles Schumer, D-N.Y.


Deutsche Bank estimates more than 80 percent of the $1.8 trillion in outstanding troubled loans have been packaged and sold in slices to investors worldwide. Most of those loans won’t likely be helped by the new plan.


The rest are “whole loans,” which are easier to modify because they have only one owner.


The new mortgage assistance plan was announced by the Federal Housing Finance Agency, which seized control of Fannie and Freddie in September and other government and industry officials. It takes effect on December 15, 2008. FHA officials say they hope the new approach will become a model for loan servicing companies that collect mortgage payments and distribute them to investors. These loan companies have been roundly criticized for being slow to respond to a surge in defaults.


A Step in the Right Direction

After more than a year of slow and weak initiatives, there now seems to be a serious effort among major retail banks to get at the heart of the credit crisis: falling U.S. home prices and record foreclosures.


Citigroup said Monday it is halting foreclosures for borrowers who live in their own homes, have decent incomes and stand a good chance of making lowered mortgage payments.


JPMorgan Chase & Co. last month expanded its mortgage loan modification program to an estimated $70 billion in loans, which could aid as many as 400,000 customers. The bank already has modified about $40 billion in home loans, helping 250,000 customers since early 2007.  Bank of America Corp. plans to modify an estimated 400,000 loans held by newly acquired Countrywide Financial Corp. as part of an $8.4 billion legal settlement reached with 11 states in early October.

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