Lenders' woes could aid borrowers
WASHINGTON - The government's takeover of the mortgage finance companies Fannie Mae and Freddie Mac should provide an opportunity to modify more home loans for troubled borrowers, government officials said yesterday.
Both companies are "looking at loan modification programs that can be done through mass solicitation programs with streamlined processing," James Lockhart, director of the federal agency that took over Fannie and Freddie earlier this month, said by e-mail.
Such an effort could have a tremendous impact because Fannie and Freddie own or guarantee more than $5 trillion in loans, about half of the nation's total.
"There are still a lot of mortgages out there that need to be restructured and families that can still be helped," Sheila Bair, the chairwoman of the Federal Deposit Insurance Corp., told lawmakers yesterday.
With 1.5 million foreclosures last year and 1.2 million in the first six months of this year, the foreclosure crisis is accelerating, she said.
Under Bair's stewardship, the FDIC has rolled out a plan to help refinance delinquent IndyMac Bank borrowers into 30-year mortgages with interest rates currently capped at 5.9 percent. The FDIC introduced the program about a month ago after it seized the Pasadena, Calif., lender, now called IndyMac Federal Bank, in July.
Some lawmakers and consumer advocates are urging the government to replicate the program among loans held by Fannie Mae and Freddie Mac, which bought loans from IndyMac, Washington Mutual, and many other banks as part of their official role in supporting the housing market.
Such efforts have the backing of the committee's chairman, Representative Barney Frank, a Massachusetts Democrat. "We will be urging others to follow your model," Frank told Bair. "I think you are setting a very good example here."
More than 1,200 homeowners with mortgages from failed IndyMac Bank are participating in the agency's effort to refinance the loans and stem the tide of foreclosures - a number that is expected to rise dramatically.
So far, the FDIC has mailed out more than 7,400 offers to modify loans, and participating borrowers have saved an average of $430 on their monthly payments. The agency estimates that about 40,000 of IndyMac's 60,000 delinquent mortgages are eligible for the program.
Earlier this summer, President Bush signed a bill that aims to prevent foreclosures by allowing an estimated 400,000 homeowners to swap their mortgages for more affordable loans, but only if their lender agrees to take a loss on the initial loan. That program starts Oct. 1, but some lawmakers are questioning whether it will do enough to stem the foreclosure crisis.
Other homeowners rushed to take advantage of last week's drop in interest rates following the government's takeover of Fannie Mae and Freddie Mac, but rates are rising again on investor fears over the eroding conditions in financial markets.
A small refinance boom started last Thursday but ended early Monday, said Pava Leyrer, the president of Heritage National Mortgage in Michigan. The average rate on a 30-year, fixed-rate mortgage was 6.14 percent yesterday, up from 6.02 percent last week, according to HSH Associates.
Last week, applications by homeowners looking to refinance their mortgages spiked 88 percent, according to the Mortgage Bankers Association. Refinances accounted for nearly 52 percent of all application activity, up from 36 percent the previous week, the trade group said.
But while the number of applications soared last week, the approval rates will likely be low because the appraisals for many homes are coming in close to or below the amount of the existing mortgages. 