Loan Giants' Takeover Hasn't Paid Off

Likewise, the government's plan to provide an additional source of money for mortgage bonds issued by Fannie Mae and Freddie Mac may be having negligible effects. Treasury has asked its investment managers, State Street and Barclays, to buy $10 billion of these bonds on its behalf.

One of the government's primary concerns before the takeover was that investors -- particularly in Asia, traditionally among the biggest buyers of U.S. mortgages -- were shedding the bonds out of fear that market demand for them would dry up.

But in the past two months, foreign investors have continued to dump the bonds. Foreign central banks' holdings of regular Fannie Mae and Freddie Mac debt and mortgage bonds have declined by about $60 billion, to $923.4 billion, as of last week, according to the Federal Reserve.

James B. Lockhart III, director of the Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac, said the reason for the companies' heightened debt costs is that "people are trying to digest the changes that have been made worldwide over the last couple of weeks." He pointed out that the companies have taken other steps to prevent higher rates, such as canceling fees they charge to insure loans.

"The key thing to me is that Fannie and Freddie can and are continuing to fund themselves," he said. "I think there will be ups and downs. Over the long term, we're very hopeful that Fannie and Freddie can continue to supply the liquidity to the housing market." Lockhart has said one of the companies' objectives under government control is to help more people struggling to pay their loans hold on their homes. Usually, that happens by modifying the terms of loans to make them more affordable.

"We've been very active in encouraging loan modifications," Lockhart said. "We have told both enterprises they can do more."

But the companies have come under criticism for not doing more already. Fannie Mae has received the brunt. The Neighborhood Assistance Corporation of America, which represents low- and moderate-income borrowers, plans today to rally hundreds of people at Fannie Mae headquarters to protest its foreclosure policies.

In a letter yesterday to Lockhart, NACA wrote that Fannie Mae, which controls 30 percent of the mortgage market, "has become the major roadblock in providing long-term solutions for the vast majority of at-risk homeowners."

NACA said Fannie Mae is too slow to restructure mortgages for people who are at risk but have not yet gone delinquent, balks too often at lowering the interest rate on loans, and refuses to write down mortgages and lower the amount borrowers owe.

Those are the types of steps IndyMac has taken under FDIC control. FDIC Chairman Bair, who's been an outspoken proponent of modifying mortgage loans, has been encouraging Fannie Mae and Freddie Mac to take the same kind of steps, according to people familiar with her thinking.

Brian Faith, a Fannie Mae spokesman, said that in the past 10 weeks the company has launched reviews of 18,000 foreclosures. He said that, among other steps, the company has agreed to reduce the interest rate on certain loans for a time and provided other incentives to avoid foreclosures.

Bruce Marks, chief executive of NACA, said he met yesterday with Lockhart and came away encouraged. "They weren't going to commit, but they were receptive," Marks said.

In Connecticut, lawyers are taking steps to try to force Fannie Mae to be more generous to people at risk of losing their homes that could test the nature of the government's hold on the company.

Evelyn Colon, a single mother in Hartford, Conn., who has consistently paid her rental bills, was being evicted after Fannie Mae foreclosed on the owner. Fannie Mae said it would consider working with Colon to let her remain.

Greater Hartford Legal Aid sued, arguing that language in the recent economic rescue bill requires federal agencies to take steps to keep tenants in their homes.

"You have Fannie being controlled by the government trying to evict the same people," said Stephanie D'Ambrose, a Legal Aid lawyer.