In an exclusive one-on-one with HousingWire, Freddie Mac CEO Charles E. Haldeman Jr. (pictured), said that foreclosure is the least attractive option from a secondary markets perspective and considers forbearance a viable option to keeping seriously delinquent borrowers in their homes.
A full transcript of that conversation is in the October issue of HousingWire magazine.
Haldeman said that forbearance, as an option in loss mitigation, is not currently as popular as mortgage modifications or even short sales, but still one that Freddie considers highly useful.
"Forbearance is not a new idea. It is not a new government-imposed program like HAMP," he said. "It is a tool that Freddie has used for a long period of time."
Haldeman said that normally, if a borrower gets ill or loses their job, Freddie will traditionally use forbearance for six months and then the payments that are forborne are restructured into a new monthly payment going forward once the borrower recovers or gets a new job.
"That has been helpful for many families who got in trouble over the past decade," he said. "Keeping them in their homes and keeping their kids in the same schools helps keep a sense of normalcy until people get themselves back together."
While some people remain out of work for longer than six months, Haldeman says, more get back on track and get current on the mortgage sooner than later which is a priority to the GSE.
And forbearance is just one tool Freddie will use to protect its investors, he adds.
"The thought process is that foreclosure is a very expensive proposition for the investor. Therefore, if we can make a modification or adjustment that is significant but that keeps the homeowner in the home, then often the investor is better off economically."
Haldeman estimates that Freddie currently owns 25% of the total U.S. mortgage market. And, the more foreclosures there are, the more pressure on house prices there is and the more vulnerable Freddie Mac's mortgage book becomes.
Nationwide, there are more than 5 million seriously delinquent mortgages. Freddie Mac currently owns 10% of those 5 million mortgages — about 500,000 mortgages. During the past 18 months, Haldeman says Freddie helped 350,000 borrowers avoid foreclosure.
"We have done that by implementing many of our traditional foreclosure prevention activities, such as forbearance and what we consider to be our traditional modification program," he said.
Write to Jacob Gaffney