Today's Fannie/Freddie Relief Plan

By Alan White
The plan to modify loans controlled by Fannie Mae and Freddie Mac announced today, while a step forward, suffers from two major drawbacks.  First, Fannie and Freddie do not hold most of the delinquent subprime and alt-A mortgages, so the plan will affect only about 10% of delinquent homeowners.  Second, as an extension of the FDIC model for modifying IndyMac mortgages, the plan calls only for monthly payment reductions, not for principal reductions.  While it is a good thing to streamline the process, and set an ambitious target of reducing payments to 38% of income (compared with the 55% standard that prevailed in the subprime market), Fannie and Freddie, like the FDIC, are still proposing to defer mortgage debt that far exceeds home prices, rather than writing it off, i.e. kick the can down the road.  We still need to deal with the servicers and investors who control most of the problem mortgages, and we still need to attack the $10 trillion problem of the overleveraged homeowner.

Comments

[Hope to Homeowners]

The hope to homeowners program can help with some of this fannie freddie pain. Get this loans off of their books and into the hands of the FHA. There are so many things that need to be done and unfortunately it doesn't seem that the Fed has a clue what they are doing. Only time will tell.

[Ranter]

There are so many problems with the fact that Fannie Mae and Freddie Mac are trying to help consumer mortgage holders from a problem that they helped create that it's difficult to find a starting point. I just finished talking about how Fannie and Freddie Extend Their Offer of Hope and wonder what comes next. It seems to me that it's time for someone with an understanding of the situation comes in and really analyzes the long-term consequences without just thinking about how to save banks from losing further millions.

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