Tue Nov 11, 2008 6:14pm EST
By Patrick Rucker
WASHINGTON (Reuters) - ...Homeowners facing foreclosure who are spending more than 38 percent of their income on mortgage payments could have monthly payments reduced by Fannie Mae and Freddie Mac in an effort to keep their homes, [James Lockhart,] the head of the Federal Housing Finance Agency said....
Soaring mortgage defaults are at the root of the global credit crisis that threatens the U.S. economy with a deep and long recession, and some economists say putting a floor under the housing market is a prerequisite to recovery. ...
Lockhart said eligible homeowners could see their mortgage rates cut, the life of their loans extended or their principal reduced in an effort to ease payments. Borrowers would need to be delinquent 90 days or more to qualify for new loan terms. ...
FDIC Chairman Sheila Bair, however, faulted the new plan for focusing so narrowly on Fannie Mae and Freddie Mac, which means it will not cover the 60 percent of seriously delinquent home loans held by Wall Street firms and other investors. ...
TRYING TO INSPIRE
Lockhart said he hopes other mortgage finance companies will adopt the new plan as an "industry standard," but mortgage investors often stand in the way of changes to failing loans.
In recent weeks, Citigroup Inc, Bank of America Corp and JPMorgan Chase & Co have all said they will ease some loan terms.
But critics say those efforts are also part of a piecemeal approach to the housing crisis that has so far failed to reverse the trend of increasing delinquencies. ...
The plan outlined on Tuesday was conceived in part by Hope Now, an industry group midwifed by U.S. Treasury Secretary Henry Paulson last year to help troubled homeowners.
Hope Now has spurred mortgage finance companies to ease terms for borrowers, but those voluntary efforts have not been enough to halt the growing pace of foreclosures. ...
MORE AID COULD COME
Bush administration officials for weeks have been trying to agree on a fresh program to aid borrowers, and Tuesday's announcement could mark the first step in a wider effort.
[FDIC Chairman Sheila Bair] has emerged as a strong proponent of more-aggressive action, but others fret too much government aid could create a perverse incentive for homeowners to game the system.
The Department of Housing and Urban Development is mulling how to expand its Hope for Homeowners program, which gave the Federal Housing Administration a $300 billion kitty to underwrite failing loans...
That program ... went into effect in October. However, it got off to a slow start and officials are eager to loosen the terms and cut some red tape to make it more appealing to mortgage companies.
Under the program in its current form, a mortgage finance company must have a home reappraised and then erase 10 percent of its value before the loan can win a government guarantee. Officials are considering lowering that required write-off, sources said.
(Reporting by Patrick Rucker; editing by Gary Crosse)
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