Four Democratic Senators, led by Charles Schumer (D-NY), are pushing federal regulators and new chief executives at Fannie Mae (FNM) and Freddie Mac (FRE) to freeze all foreclosures on loans they own for 90 days. Numerous news outlets reported on the move Thursday afternoon, citing a letter sent by Schumer, Sherrod Brown (D-OH), Bob Casey (D-PAU), Bob Menendez (D-NJ) earlier this week. Senators are pushing the Federal Housing Finance Agency, the new regulator for both GSEs, to freeze foreclosures and “take whatever actions are necessary” to have troubled homeowners keep their homes. “This action would provide immediate relief to many homeowners, [and] turn these non-performing loans into performing assets to minimize losses,” according the the letter. HW reported yesterday on a push by consumer advocacy groups to see Fannie and Freddie adopt a loan modification program that mirrors one put in place last month at IndyMac Federal Bank by the Federal Deposit Insurance Corp. — the FDIC took over the failed bank earlier this year, and rolled out the new loan modification program on Aug. 20. The FDIC’s plan focuses on modifying loans for delinquent and severely delinquent borrowers, employing so-called “affordability modifications” en masse; in other words, the FDIC will look to write down loans to roughly whatever levels the borrower can afford, a strategy that has long been advocated by consumer groups but panned by industry representatives. The FDIC said it would look to put borrowers with various Alt-A loan products into “affordable” mortgages that would reduce their payment load down to a 38 percent payment-to-income ratio, including principal, interest, taxes and insurance — even if that means writing off principal, or reducing rates well below current market rates to get there. That’s exactly what consumer groups and now a group of Democratic Senators say they want to see done with the GSEs, which own or guarantee roughly half of all mortgages in the U.S. “Schumer really has to start thinking about what’s in the best interest of the majority of taxpayers and I’m not sure that freezing foreclosures is in the best interest of the majority of taxpayers,” Joshua Rosner, an analyst with Graham Fisher & Co. told Bloomberg News. “It would just prolong the agony.” Officials at the FHFA and the GSEs had not commented on the letter to the press by the time this story was published, and a representative from the FHFA declined to comment when contacted by HW. But sources HW spoke with sounded both resigned and angry at the news. “I thought it would take a week for consumer groups to start crying to Congress,” said one source, an attorney that asked not to be named in this story. “It only took about three days, apparently.” Another source suggested that the end game would likely be a large-scale bailout for troubled borrowers. “With the government all but signaling it will step in at the banks the that were the most aggressive mortgage lenders, and now owning Fannie and Freddie too, there’s no way they don’t push the cost of this mess back to the taxpayer,” said the source, a long-time industry analyst that asked not to be named. Disclosure: The author held no relevant positions when this story was published; indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
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