SHOULD FANNIE MAE, FREDDIE MAC, AND BANKS SUCH AS CITIGROUP Step Up Loan Modification Efforts?

By
Real Estate Agent with Dean's Team - Keller Williams Realty Partners Chicago IL

Hey, folks!

I was scanning today's online Wall Street Journal today, and spotted a post by Emily Friedlander on the "Developments" blog discussing plans by Giant Loan Investors and Guarantors Fannie Mae and Freddie Mac (now government entities), as well as financial giant Citigroup. 

These organizations have proposed to offer modification programs to dozens of home borrowers across the country who have either defaulted on their home mortgages, or would soon be likely to default.

Recently, Bank of America agreed to modify many of the risky Option ARM Loans originally written by its recently-acquired Countrywide Home Loans business by reducing the rates on these loans - but not the outstanding principal balance - to as low as 2.5% in some cases, to reduce the chance these loans will go into foreclosure.

IndyMac Bank of California, recently seized by the Federal Deposit Insurance Corporation, has stalled all of its foreclosures, instead opting more aggressively for workout arrangements with its delinquent home borrowers.

The Citigroup program will cost $20 Billion .  It is targeted at those in danger of falling behind in their mortgage payments, but current at the present time.  Foreclosures would be stalled as long as borrowers are making a good faith attempt to renegotiate their loan into a more affordable loan product requiring monthly house payments no more than 40% of their monthly family income.

Fannie Mae and Freddie Mac will attempt workout arrangements with certain borrowers at least three months behind on their payments.  Qualifying borrowers must still live in their homes as their principal residence, must not have filed for bankruptcy protection, must owe at least 90% of the home's present market value, and be currently employed.

Opponents of such plans feel they might actually ENCOURAGE loan delinquency, in order to get out from under too much debt they willingly took on.  They contend that individual borrowers should not be rewarded for such bad judgment.

Those favoring the plan point to the likely 8.5 Million Homeowners going into default between now and 2010, according to research by Moodys.com, and the massive strain these potential foreclosures will put on the U.S. Housing and Credit Markets, as well as the likely chilling effect that thousands of new, foreclosed, boarded-up homes will have on the livability of neighborhoods across the country.

It goes without saving that the impact of these modification programs will transcend the waning days of the Bush Administration and dog the new Obama Administration for months to come.

Friedlander's Journal post had dozens of spirited comments, some in favor of, but many opposed to, large U.S. or bank-sponsored loan modification programs.

What say you?  Please share!

Click to our post on BlogChicagoHomes.com for more, as well as the link to Emily Friedlander's post.

DEAN & DEAN'S TEAM CHICAGO

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Rainmaker
453,505
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Dean, while no one knows what the outcome will be--how many will avail themselves of the programs offered, how much fraud may be involved, how much time will elapse before we see the market improve--we do know that modifying a certain number of loans will have no short term benefit, except to the borrower.

I'm most concerned about the underlying problems, such as rising unemployment and the failure of other credit markets, that will keep the cycle going.  Nothing the government does will accomplish their stated goals, and the additional debt they are creating may grow into an unmanageable monster.

 

Nov 12, 2008 08:44 PM #1
Rainer
31,074
Loren Johnson
White Bear Lake, MN
CMPS

Unfortunately, I had 2 calls today from people wanting more information on how many payments they had to miss to qualify for this program. Sad, very sad. (not clients of mine, Thank goodness!)

Nov 12, 2008 09:26 PM #2
Rainer
41,580
Terry Osburn
BHHS|Drysdale Properties - Pleasant Hill, CA
Broker Associate

1-Bring back the jobs to US soil

2-One of my banking institutions sends me weekly if not twice weekly blank checks to write on my credit loan I have .......encouraging me to build up more debt ...........I have torn each and every one up but I find it odd the banks still encouraging consumers to go further into debt.

3-I agree the underlying problem has not been addressed and until it is hit head on this cycle will keep repeating. FRAUD.......Each and every state needs to restructure their licensing for Realtors and loan officers.  NO FELON should be able to get a real estate license and/or have the ability to do loans.

I could go on an on but why beat a dead horse. The powers to be know what they need to do.

I do believe that many innocent victims were caught up in the snafu of the market demise. They should be helped to stay in their homes. There were those who lied on their applications stating they made $10,000 a month when they barely made $3000. They are adults . They know right from wrong. That should have been a clue for things to come.  I am not as forgiving to those who knew what they were doing was wrong.

There were certainly scams and high pressured salespeople who talked circles and ensnared many into their traps.  Certainly the hispanic people were hit extremely hard in our area, by their own for the most part.....many not speaking english that well not understanding what they were signing , were told their payments would only be $1400 or $1500 a month , not realizing they signed an adjustable rate note with high index and their payments would soon shoot up to $3000-$4000.

Many seniors were defrauded and strong armed. This will go down in history as an embarrassment to the US for the greediness that has prevailed and the lack of controls to govern and monitor with checks and balances. I understand their is a fine line between Big Brother and lack of governmental oversight........Bottom line CHECKS and BALANCES somehow has to be instituted and fastly for the economy to rebuild on a stable structure and base.

I don't have the answers to such that is why we voted in our politicians to take care of. So lets make them ACCOUNTABLE from now on. The good ole boys club and the special interest groups need to get busted big time.

 

Nov 12, 2008 09:30 PM #3
Rainmaker
181,596
Debbie DiFonzo
Debbie DiFonzo - United Country VIP Realty, SW Missouri - Lebanon, MO
Lebanon MO and Buffalo Missouri Real Estate

There is fraud in every part of our society. Not saying it is right, just saying it is going to happen, regardless.

I also had a call today. The man said he is self employed and so is his wife. They are doing find NOW but wondered about the program and who they could call. Their income isn't steady - boy, could I relate.

First banks, insurance companies, now car makers. Not to be left out, maybe NAR needs to propose a bailout for Realtors. We can't get health insurance, surely we can get bailout dollars.

Nov 12, 2008 10:06 PM #4
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Rainmaker
363,083

Dean Moss

Dean's Team Chicago IL Real Estate Team
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