Fannie and Freddie jump on board the loan modification train.
Tuesday, 11 November 2008 by Dave
So it is expected that the government will announce plans later today to try to stem the tide of delinquent mortgages heading for foreclosure by adding Fannie Mae and Freddie Mac to the list of lenders who will be making a concerted effort to modify bad loans. Fannie and Freddie join Bank of America (formerly Countrywide), JP Morgan Chase, and Citigroup who have all recently announced or previously implemented plans to stop the bleeding on their balance sheets and help homeowners in trouble.
MSNBC has more information here.
While I tend to agree with Greg Swann on this one in that it is only going to delay the inevitable in most areas of the country, it does make perfect sense in the short term for the financial entities involved.
In speaking with a mortage broker yesterday, she was shocked at how receptive Bank of America (this was a Countrywide loan that they inherited) was to reworking a loan for her client. 4% interest only for the next three years. This was an elderly couple who had an adjustable rate mortgage and couldn’t make the payments now that the first rate adjustment had kicked in. Their income situation isn’t likely to change for the foreseeable future. I don’t see the solution in a loan modification in this case unless it involves a reduction in principal on the loan and it is more than a three year fix. While I’m not going to accuse the broker of doing harm here (she is getting paid for her assistance), one has to wonder if this is the best case scenario for these people.
I would expect that the combination of the current actions by the banks and what is likely to be a secondary plan backed by our president-elect to further alleviate the pressures of the housing collapse will provide short term optimism and maybe even growth in prices in some markets. We will need to have something real in place to stimulate growth in our economy in the not too distant future though or we’re only going to be back in line for another fix before you know it.
No. 1 — November 11th, 2008 at 2:23 pm
[...] lenders become more willing to work out loan modifications with sinking homeowners, will struggling mortgage brokers switch from originating loans to [...]
No. 2 — April 26th, 2009 at 9:51 am
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