Freeze sought on foreclosures after takeover

Four Democrats on the Senate banking committee Thursday called for a temporary freeze on foreclosures for trillions of dollars in home loans held by Fannie Mae and Freddie Mac, just four days after the Treasury Department ordered a taxpayer-financed takeover of the two mortgage giants.

The lawmakers also said the government should use its control over the two companies to make it easier for struggling homeowners to renegotiate the terms of their mortgages.

“As you are well aware, the housing crisis continues to devastate too many American families,” the four senators wrote in a letter addressed to Fannie and Freddie’s new management and to Federal Housing Finance Agency Director James Lockhart, the two companies’ new primary regulator.

A 90-day moratorium on foreclosing on Fannie- and Freddie-backed mortgages “would provide immediate relief to many homeowners … and turn these non-performing loans into performing assets to minimize losses,” said the letter, which was signed by Sens. Charles E. Schumer of New York, Bob Casey of Pennsylvania, Sherrod Brown of Ohio and Robert Menendez of New Jersey.

But one private economist said the foreclosure freeze was not a long-run solution to the problems at Freddie and Fannie, and could have the effect of raising prices for future homebuyers.

“To the extent that this creates uncertainty about the rules or the timing on when a lender can foreclose, in the long run that hurts future homebuyers,” said Gerald O’Driscoll, a senior fellow at the libertarian Cato Institute.

Fannie Mae and Freddie Mac either own or guarantee just under $6 trillion in home mortgages, about half of the total U.S. market.

Treasury Secretary Henry M. Paulson Jr. engineered the Fannie and Freddie rescue plan over the weekend, in a takeover that could cost the U.S. government up to $200 billion to cover the two companies’ troubled assets.

The letter from the four Democratic senators on the Senate Banking, Housing and Urban Affairs Committee is one of the first proposals in what is expected to be an intense debate over the future of Fannie Mae and Freddie Mac. At the extremes, proposals have ranged from a permanent federal takeover to breaking them up and selling their holdings to the private sector.

Congressional Democrats have argued strongly for preserving both Fannie Mae and Freddie Mac, but Mr. Paulson has said the companies’ ultimate fate will be decided by the new administration and Congress elected in November.

The troubles of Fannie Mae and Freddie Mac continued to roil the markets Thursday. Progressive Corp., the country’s third-largest auto insurer, announced a $135.2 million loss in August - its first monthly loss since 2002 - because of write-downs on Fannie Mae and Freddie Mac.

Other companies that have said they may take losses following the government takeover include insurance firms Hartford Financial Services Group, First American Corp. and WellPoint Inc., the country’s biggest health insurer.