Fannie Mae, Freddie Mac to Suspend Foreclosures Over Holiday Season
Friday, November 21, 2008
Fannie Mae and Freddie Mac announced yesterday that they are temporarily suspending foreclosures and evictions during the holiday season in an effort to keep people from losing their homes.
The companies said they are taking the step so they can include more people in a newly announced program to change the terms of troubled mortgages to make them more affordable.
The mortgage finance giants, seized by the government in early September, have been under pressure by lawmakers and housing advocates to take bolder steps to fight foreclosures. As the owners or backers of trillions of dollars of mortgages, the companies have an unrivaled ability to shape the home loan market and help people with distressed mortgages.
Last week, the companies said they would enact a program to restructure mortgages for borrowers who are falling behind in their payments. That effort would seek to help homeowners who haven't paid their loans for three months but whose homes had not been foreclosed upon yet. In a foreclosure, Fannie Mae or Freddie Mac seizes control of a home and, usually, tries to sell it.
The foreclosure freeze announced yesterday will extend the mortgage modification program to those who have been declared in default and are at immediate risk of being forced from their homes. The companies said as many as 16,000 borrowers could benefit.
Foreclosures and evictions will be stopped from Nov. 26 to Jan. 9.
"With this suspension, seriously delinquent borrowers may have an opportunity to avoid foreclosure and work out terms to stay in their homes," said Federal Housing Finance Agency director James B. Lockhart III, the regulator in charge of Fannie Mae and Freddie Mac.
Under the mortgage modifications program unveiled last week, Fannie and Freddie will seek to modify loan terms to ensure borrowers aren't paying more than 38 percent of their monthly pretax salary on their mortgage. The companies will do this by extending the total term of loans to up to 40 years, reducing the interest rate, and, in some cases, delaying payment on part of the loan.
The program will begin Dec. 15. Attorneys working for Fannie Mae and Freddie Mac will contact borrowers facing foreclosure.
"Until the streamlined modification program is fully implemented, we felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent a foreclosure have an opportunity to stay in their homes," Fannie Mae chief executive Herbert M. Allison said in a statement.
Freddie Mac chief executive David M. Moffett said his company is on track to help three out of five troubled borrowers with Freddie Mac-owned loans avoid foreclosure. "Today's announcement builds on this momentum and provides a new measure of certainty to many of these families during the holidays," he said in a statement.
The foreclosure freeze will apply to single-family homes that continue to be occupied. Freddie Mac's program also applies to buildings with two to four apartments.
Fannie and Freddie have launched other programs as well. A Fannie Mae program requires employees to take a second look at delinquent loans to ensure the borrower has been contacted and other options have been considered. Freddie Mac gives authority to mortgage lenders to renegotiate loans and offers them financial incentives to do so.
"We must and will do more," Allison said.