GSEs Bolstering Foreclosure Prevention Efforts
Washington-Fannie Mae and Freddie Mac have stepped up their foreclosure prevention efforts now that the two mortgage giants are operating in conservatorships and under the tight control of their regulator.
Federal Housing Finance Agency director James Lockhart told a congressional panel the government-sponsored enterprises will be taking a "systematic approach" to loan modifications.
"Going forward, we will work with the CEOs to modify business practices, such as the lengthy delay before pulling delinquent loans from securitized pools. Practices such as this were motivated by capital concerns, but undermined efforts to help distressed borrowers," Mr. Lockhart testified Sept. 25 before the House Financial Services Committee.
The new chief executives of Fannie and Freddie testified that their shops have increased incentives for servicers to provide borrowers with workout options to stay in their homes.
"We are in the process of increasing our use of specialty servicers skilled in problem loan workouts," Fannie president and CEO Herbert Allison told the committee. He also noted that the HomeSaver program, which provides personal loans of up to $15,000 to help borrowers to catch up on their payments, has helped nearly 38,000 homeowners.
In its last quarterly financial report, Fannie said servicers had made 17,900 HomeSaver advances to delinquent borrowers as of June 30.
Freddie CEO David Moffett told the congressmen his company expects servicers to underwrite each modification based on the borrower's actual circumstances and with a cushion to cover unanticipated expenses. "Workouts are critically important, but they will not stabilize the market unless borrowers are able to sustain homeownership going forward," Mr. Moffett said.
Freddie also launched a "mass modification" pilot program in April that is aimed at troubled borrowers that have not responded to servicer calls or mailings.
"In this new initiative, servicers solicit seriously delinquent borrowers with a pre-approved modification plan. Notwithstanding the continued difficultly of contacting many borrowers, early results are positive," Mr. Moffett testified.
Under this pilot program, borrowers are offered a two-percentage-point reduction in the interest rate and the term of the mortgage is extended to 40 years.
Meanwhile, Mr. Lockhart has ordered Fannie and Freddie to cooperate with the Federal Deposit Insurance Corp. in modifying loans at the failed IndyMac Bank, Pasadena, Calif.
FDIC chairman Sheila Bair has been calling on the industry to adopt systematic approaches to loan modifications and she has put that concept to work at the $32 billion failed thrift that specialized in alt-A lending. Fannie and Freddie have large alt-A exposures.
The FDIC estimates 40,000 of the 60,000 seriously delinquent loans at IndyMac are candidates for loan modifications.
"I expect the ongoing work on loan modifications there, and with other seller servicers, to continue to be a high priority for the conservatorships, both as a matter of good business and as a matter of supporting the enterprises' mission," the FHFA director said.