The plan centers on Fannie Mae and Freddie Mac, which between them own or back about $5 trillion in loans. The federal government took over the firms in September due to mounting losses on their portfolios of mortgages.
While a number of major banks, including Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500), have announced loan modifications programs in recent weeks, they hold only a fraction of the nation's mortgages compared with Fannie and Freddie.
Despite calls from members of Congress and some housing advocates for the government to take a more direct role in preventing foreclosures, federal agencies have been slow to present their own plans to modify the loans of millions of homeowners at risk.
Sheila Bair, the chairman of the Federal Deposit Insurance Corp. whose agency took over home lender IndyMac in July, testified to the Senate Banking Committee on Oct. 23 that her agency was working "closely and creatively" with the Treasury Department on a mortgage rescue plan but revealed few details.
She suggested the government would establish standards for loan modifications and provide guarantees for loans meeting those standards so that "unaffordable loans could be converted into loans that are sustainable over the long term."
But in the three weeks since then there has been little in the way of new direct federal help for homeowners, even as the government pumped nearly $50 billion into regional banks and reworked the bailout of American International Group, while pressure mounted from Congress to help the nation's automakers and state and local governments.
Most of the mortgage modification programs announced by banks so far try to cap the payments of homeowners at risk of losing their homes at a level they can afford, typically about 34% to 40% of their income, through lower interest rates, longer repayment schedules or reductions in loan balances. There are reports that the Fannie-Freddie plan will cap payment at the 38% level, though those details could not be confirmed ahead of the meeting.
Representatives of another major bank, Wells Fargo (WFC, Fortune 500), are also set to attend a 2 p.m. ET briefing by the Federal Housing Finance Agency, the government regulator of Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500).
It is clearly in the interest of the mortgage finance firms as well as banks to take steps to halt foreclosures. The market is already flooded with far more new and existing homes for sale than there are buyers, and foreclosures will only further drive down home prices and lead to more foreclosures in the future.
Moody's Economy.com forecasts that even with loan modification programs, 1.6 million Americans will lose their homes this year either in a foreclosure or distressed sale, and another 1.9 million are projected to lose their homes in 2009.
On Monday, Fannie reported a $29 billion loss in the third quarter. The company also reported sharp increases in loan default rates and the amount it is setting aside for future loan losses. To top of page
First Published: November 11, 2008: 11:42 AM ET
