- The Washington Times - Wednesday, November 12, 2008

The government and the mortgage industry are launching the most sweeping effort yet to help troubled homeowners by speeding up the process for renegotiating hundreds of thousands of delinquent loans held by Fannie Mae and Freddie Mac.

The Federal Housing Finance Agency, which seized control of the two mortgage finance companies in September, announced the plan Tuesday along with other government and industry officials, including Hope Now, an alliance of mortgage companies organized by the Bush administration last year.

“Foreclosures hurt families, their neighbors, whole communities and the overall housing market,” said James B. Lockhart III, the housing finance agency’s director. “We need to stop this downward spiral.”

The plan could have tremendous importance because Fannie Mae and Freddie Mac own or guarantee nearly 31 million U.S. mortgages, or nearly six of every 10 outstanding. Still, government officials did not have an estimate of how many people would qualify for the new program.

Officials hope the new approach, which goes into effect Dec. 15., will become a model for loan-servicing companies, which collect mortgage payments and distribute them to investors. These companies have been roundly criticized for being slow to respond to a surge in defaults.

To qualify, borrowers would have to be at least three months behind on their home loans, and would need to owe 90 percent or more than the home is currently worth. Investors who do not occupy their homes would be excluded, as would borrowers who have filed for bankruptcy.

Borrowers would get help in several ways: The interest rate would be reduced so that borrowers would not pay more than 38 percent of their income on housing expenses. Another option is for loans to be extended from 30 years to 40 years, and for some of the principal amount to be deferred interest-free.

But the head of the FDIC said after Tuesday’s announcement that the plan is insufficient to bring widespread changes in home loans.

Federal Deposit Insurance Corp. Chairwoman Sheila Bair says the new plan “is a step in the right direction but falls short of what is needed.”

More than 4 million American homeowners, or 9 percent of borrowers with a mortgage, were either behind on their payments or in foreclosure at the end of June, according to the most recent data from the Mortgage Bankers Association.

Indeed, Tuesday’s announcement comes too late for Troy Courtney, 44, a San Francisco police officer.

He moved out of his home in Mill Valley, Calif., at the start of this month after failing at several attempts to get a loan modification or a short sale - where the lender agrees to receive less than the loan is worth.

Mr. Courtney worked overtime and tapped into his retirement account to try to catch up with two loans on his home. But in the end he couldn’t persuade Countrywide Financial, which managed the loan for Wells Fargo, to modify the loan.

“I feel like I missed the boat,” he said of the new efforts to help more homeowners. “I’m just mad at the whole system.”

One reason the problem has been so tough to solve for borrowers like Mr. Courtney is that the vast majority of troubled loans were packaged into complicated investments that have proven extremely difficult to unravel.

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 around the world.

The remaining 20 percent are “whole loans,” which are easier to modify because they have only one holder.

Nevertheless, Tuesday’s announcement coupled with recent and more aggressive strategies from the major retail banks are important steps in fixing the housing crisis. After more than a year of slow and weak initiatives, there appears to be a serious effort to get at the heart of the credit crisis: falling U.S. home prices and record foreclosures.

Citigroup announced late Monday it is halting foreclosures on borrowers who live in their own homes, have decent incomes and stand a good chance of making lowered mortgage payments. The New York-based banking giant said it is also working to expand the program to include mortgages for which the bank collects payments but does not hold.

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