WASHINGTON – With foreclosures spiking, the
Federal Reserve
is taking steps to try to keep some distressed borrowers in their
homes.
Under the program, the Fed has a number of options to provide
relief, including lowering the amount the homeowner owes on the
mortgage, reducing the interest rate or lengthening the term of the
loan.
It's unclear how many homeowners would benefit. However, the
relief plan would apply to the billions of dollars of mortgage
assets the Fed is holding on its books because of last year's
bailouts of Bear
Stearns and insurer
American International
Group.
In general, a borrower must be at least 60 days delinquent to
qualify for help, although the Fed has leeway to make some
exceptions. A 2008 law that set up the $700 billion bailout fund
instructed the Fed to take such foreclosure relief action.
"The goal of the policy is to avoid preventable foreclosures on
residential mortgage assets that are held, owned or controlled by a
Federal Reserve Bank,"
Fed Chairman Ben
Bernanke wrote in a letter Tuesday to
Rep. Barney Frank,
D-Mass., chairman of the
House Financial
Services Committee.
Bernanke has repeatedly urged Congress and — more recently — the
administration of
President Barack Obama to ramp up efforts to curb
home foreclosures,
which are aggravating the economy's problems. The new administration
is examining ways to stem foreclosures.
Sen. Chris Dodd,
D-Conn., chairman of the Senate Banking Committee, welcomed the
Fed's program and called it "an important advance."
The Fed's Bear
Stearns' portfolio is valued at $27 billion, although the
central bank doesn't say how much of that is in
home mortgages.
The Fed's AIG assets include one portfolio valued at nearly $20
billion of
residential mortgage-backed securities and a second portfolio
valued at nearly $27 billion of
collateralized debt
obligations, which are complex
financial instruments
that combine various slices of debt.
More than 2.3 million homeowners faced foreclosure proceedings
last year, a whopping 81 percent increase from 2007. And more than
860,000 properties nationwide were actually repossessed by lenders
last year, more than double the 2007 level, according to RealtyTrac,
a California-based
foreclosure listing
firm. Nevada, Florida, Arizona and California had the highest
foreclosure rates last year.
Housing, credit and financial crises — the worst since the 1930s_
have plunged the country into a recession, now in its second year.
So far, a slew of radical government programs have failed to remedy
the problems.
WASHINGTON (Reuters) - The soaring volume of homes worth less than the
mortgages on them means that banks need to consider writing down the value
of the loans, Federal Reserve Governor Randall Kroszner said on Wednesday.
"The fact that many troubled borrowers have properties that are now worth
less than the principal amounts ... suggests that lenders and servicers
should give greater consideration to the use of principal reduction as one
of the loan modification options in their tool kit," Kroszner told the U.S.
House of Representatives Financial Services Committee.
He said home foreclosures in 2008 will top the 1.5 million of 2007 and
noted that in January some 24 percent of subprime adjustable rate mortgages
were behind on payments, double the fraction that were delinquent a year
earlier.
Kroszner said that given the scale of the nation's housing woes, "it is
in everyone's interest to develop prudent loan modification programs."
He said a U.S. Treasury-brokered plan for temporary freezes on
adjustable-rate mortgages for some borrowers was one example but strongly
suggested more aggressive measures were needed.
"In this environment, servicers and investors may well find principal
reductions that restore some equity for at-risk homeowners to be an
effective means of avoiding delinquency and foreclosure," Kroszner said.
He suggested that writedowns of loans could be "targeted" through means
such as limiting them to people who had high debt payment-to-income levels
so that they would be available only to those who genuinely needed them.
Kroszner urged Congress to speed up action on proposals to modernize the
Federal Housing Administration, the Depression-era agency that insures
mortgages issued by FHA-approved lenders. That would "increase its scale and
improve the management of potential risks borne by the government" as it
copes with the housing market's distress.
"Separately, the GSEs -- Fannie Mae (FNM.N)
and Freddie Mac (FRE.N)
-- could be asked to do more," Kroszner said.
He said it would be "an especially appropriate time" for those
government-sponsored enterprises to quickly raise capital so that they can
take advantage of recent moves to let them buy bigger loans and play a
larger role in mortgage markets.
(Reporting by Glenn Somerville; Editing by James Dalgleish)
The government recently took over Indy mac bank after a giant run on
deposits. To prevent further losses, they are offering new loan terms to
homeowners that are at the brink of foreclosure.
The FDIC will offer loan modifications that will include rate reductions,
and extended loan terms for IndyMac homeowners. It is reported that 29,000
modifications will be offered in the next month.
The reported objective of the FDIC is to recover as much of as possible on
loans that are considered to be foreclosure candidates. Many homeowners will
benefit from the new terms, but the objective of the plan is to recover
profits. The FDIC seeks to sell Indy Mac and it's assets.
IndyMac Federal claims that they will only offer new terms to borrowers
where it will increase the value of current assets. It appears that Indy Mac
will only offer the streamlined loan modifications to a small portion of
homeowners. The offer will only be available for the first mortgage of the
homeowners primary residence. Homeowners must also be able to afford the new
loan terms in order to qualify for the offer.
The new loan interest rates will be based off of the
current Freddie Mac averages for conforming loans. DTI ratios's to
range in the area of 38% with PITI
If you have an Indy mac mortgage, and you do not receive a modification
offer or you cannot afford the modified terms, contact us and we will work
to negotiate a better modification for you.
Fha has released news that they have changed their loan
modification and loss mitigation programs. These changes will apply to borrowers
who are in serious delinquency. The changes will give homeowners additional
latitude to help fix delinquent payments.
For FHA Loan modifications, banks and service companies are able to use the ten
year treasury maturity to decipher the maximum interest rate. Many banks have
also expressed to FHA that the foreclosure expenses are preventing many
homeowners with FHA loans from qualifying for a modification. Several homeowners
who can make the original mortgage payment are not able to pay the foreclosure
fees after a notice of default has been issued. Because of this issue, they will
now allow foreclosure expenses to be wrapped into a loan modification.