U.S. resets terms for homeowner help
The government set new terms, including lower interest rates, for homeowners seeking relief from foreclosure, terms that will be adopted by Fannie Mae and Freddie Mac. Washington Bureau Chief John Dimsdale reports.
A foreclosure sign in front of a house for sale in Stockton, Calif. (Justin Sullivan/Getty Images)
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Kai Ryssdal: Federal regulators -- and by that I mean the folks who've been running the mortgage giants Fannie Mae and Freddie Mac since the bailout a couple of months ago -- announced they're going to set new terms for hundreds of thousands of struggling mortgage holders. And, they hope, use Fannie and Freddie's market clout to set an example. Marketplace's Washington Bureau Chief John Dimsdale reports.
John Dimsdale: The easier mortgage terms will include lower interest rates, as low as 3 percent, less than half what a homebuyer could get now. Extending the length of the loan as long as 40 years and perhaps forgiving some principle or deferring payments until the home is sold. The workouts are aimed at homeowners who are 90 days or more behind on their payments, but not yet in bankruptcy. Fannie and Freddie are responsible for only about 20 percent of the at-risk mortgages but their regulator, James Lockhart, urged private lenders, who own the vast majority of bad loans, to adopt these standards.
James Lockhart: Not only will this streamlined approach assist borrowers, but broad acceptance and effective implementation will stabilize communities and property values.
But more favorable mortgage terms for some creates problems of equal treatment for all homebuyers.
Nicholas Retsinas: The more they read about bailouts and assistance, there is certainly this notion, well, 'Why not me? How do I qualify?'
Nicholas Retsinas at Harvard's Joint Center for Housing Studies says so far, private sector efforts to clear the mortgage mess by negotiating individual workouts aren't working.
Retsinas: We're well beyond case-by-case solutions now given the level of what's involved. So I think the challenge is how do you come up with a template that catches most of the people you want to help. Understanding there may be one or two who get help who you didn't want to help.
Fannie and Freddie's program is designed to reduce monthly mortgage payments for at-risk loans to 38 percent of a family's income. That means a little more than $3,000 a month for households earning $100,000 a year. As more private mortgage servicers adopt a rescue template, including Citigroup yesterday, you have to wonder why lenders didn't work out favorable terms with homebuyers to begin with.
In Washington, I'm John Dimsdale for Marketplace.
Comments
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From westerville, OH, 12/16/2008
if the government is lending money at 0%, why are mortgage holders still doubling monthly payments for current homeowners?
From Bowie, MD, 11/11/2008
Why not have banks that are working with the Federal government [either taking monetary assistance or some other "in-kind" support] be strongly urged to lower the interest rate on the mortgages that they hold? When you consider the amount of monthly additional cash given to consumers as well as perhaps dealing equitably with the conundrum of "who deserves or needs aid", this would pump a good deal of cash back through the economy. To me, this is a far better "stimulus package" than a tax rebate or many other schemes under consideration.
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