Fannie and Freddie get in the holiday spirit

Taking a cue from Obama's campaign, Fannie and Freddie are freezing foreclosures, although not for 90 days. From the Associated Press via MSNBC.com:

Mortgage finance companies Fannie Mae and Freddie Mac are suspending foreclosures for about 16,000 U.S. households during the holiday season.

The two companies said Thursday that they will halt foreclosure sales between Nov. 26 and Jan. 9, while they evaluate whether borrowers qualify for a new loan modification program announced last week.

Adds CNNMoney.com:

"By delaying these foreclosure sales, the nation's servicers will have the opportunity to work with more borrowers who could qualify for a modification under the new [program]," said Freddie Mac CEO David M. Moffett in a statement.

Freddie has told its servicers to immediately contact the 6,000 borrowers who already have auction sales or evictions scheduled for between the specified dates to tell them the sales are postponed. Fannie estimated that 10,000 of its borrowers will be affected. Borrowers facing eviction between Nov. 20 and Nov. 26 were not expected to get relief....

The mortgage rate could be lowered to as little as 3% for five years. After that, it would increase by 1 percentage point a year until it hits either the market rate or the original interest rate, whichever is lower.

In a departure from previous federal plans, this does not rely on the voluntary participation of banks. They must comply.  But is this just forestalling the inevitable? And what will it cost the taxpayers?

It looks like a drop in the bucket. More than 4.4 million borrowers could become delinquent by the end of 2009, the Federal Deposit Insurance Corp. estimates.

-- Lauren Beale

Comments

[California Mortgage]

Happy new year? It's bad enough the holidays will mark the worst retail year in probably 40 years. Now we have a giant supply of foreclosures to look forward to as well.

[Laker]

My take is that "forestalling the inevitable" is understatement. When the dam has serious cracks in it, the best solution is to release the water fast using the known methods such as the valves aka foreclosures so that it can be fixed.
If we decide to hold the water by all means from flowing down aka freeze foreclosures, we will have the damn explode and demolished completely aka depression and dramatic over correction that will get houses to be prices cash value - not mortgages - as in $100,000 for median price in LA.

If foreclosures as so bad, how come we did not outlaw it...
Want it or not, foreclosure is the best thing that was invented for the true home owner or wana be home owner. Because of the ability of a bank to foreclose, the bank can give a mortgage secured by the house for 6% today. If the bank know that they can't foreclose, or if foreclosure was not available, they would have charged us 18% interest rate for good borrowers and 29.99% for below prime credit. Think what that percentage would have done to home prices....If we keep messing with slowing the foreclosures or god forbid stopping them, only god will help us avoid 29.99% interest rates in the near future.

[Tim K.]

Lauren, your comment about this being a drop in the bucket is spot-on.

It's more PR than anything from Fannie and Freddie. They just don't want a lot of "Grinch who stole Christmas" stories blaming them this season - but in reality, they have almost no control over the situation and the 10,000 loans they are freezing won't make a squat bit of difference.

Also, during the holiday season you probably can't reach a lot of these families anyway, and nobody is really looking to do a lot of modification business during the next 2 months, so even if the 10K number was larger, it still wouldn't make any difference.

[sfvrealestate]

Laker, you're such a grinch. What is wrong, exactly, with delaying a few thousand foreclosures for a few weeks? How does that hurt you or the housing market? I think you should take some of the down payment you've been saving and go out and buy a heart. You need that more than a roof and a foundation.

[Lou]

While I normally would be against it, I'm in the Christmas spirit right now.

We all know why they are doing this. They want these people to charge up their credit cards in December to boost up consumer spending during the holidays.

When 2009 comes around these people will be back in the same situation with more debt from Christmas shopping.

[RichW]

While on the subject of insolvent lenders and foreclosures, please take a moment to look at Downey S&L's stock today. For those who don't know how to do this, go to http://finance.google.com or http://finance.yahoo.com then type DSL into the search box.

From what I see, they are begging for FDIC takeover today...

P.S. to see some up and coming superstars, also look up "FED" and "IMP"....

[MyLessThanPrimeBeef]

I can already hear it.

'Equality! Equality!' scream those who were foreclosed yesterday.

Why should fate be so cruel?

In fact, this sounds a lot like cruel and unusual punishment. It's preferential - those who bought earlier and at lower prices are punished and bought later and at higher prices during the bubble are given postponement. It's capricious. It's arbitary.

Regardless, dark clouds are gathering. Mean winter stares down at us with his cold eyes. The world has changed.

[Hangemhigh]

I'm inclined to agree with Laker. Anybody remember what interest rates were like when Reagan was in office? I thought not.
I am deeply troubled by the obvious political grandstanding, delaying the inevitable, and the little talked about "shadow inventory" of homes the banks are waiting to write down, while they juggle with the illusion of solvency. Not to mention the time bomb of ARM's that will be rearing their 300 billion dollar head, at it's loudest, the 2nd quarter of 2010 here in good old California. When the bough breaks the cradle will fall........

[dclogang]

I hope they do hold back "the dam" if that means that prices will over correct on the downside! Heck yea!

Median house price for SFV $100,000? bring it on. I'll buy one with 20% down fixed 30 years..

[Tim K.]

sfvrealestate wrote: "What is wrong, exactly, with delaying a few thousand foreclosures for a few weeks? How does that hurt you or the housing market?"

It hurts whenever anyone doesn't DO WHAT THEY PROMISE. That's what mortgages are - a promise to pay for a house you are living in. Why should we "have a heart" for those who break they promises?

Let's all love the dishonest! NOT!

[Nick]

Laker, spot on as usual. The only problem with your analysis is that if the private banks started charging realistic rates (which they will likely move toward when the government halts most foreclosures next year), the government will step up their lending efforts, undercut everyone trying to not lose money, and basically just take over the industry. The current strategy is only idiotic and unsustainable if you assume an end-game of a still capitalist banking system...

[Valley Renter]

Delaying foreclosure is like delaying death. The only difference in delaying a foreclosure in a plummetting market is that your funeral costs soar each day you wait.

[Jeff S]

I think Lou hit the nail on the head.

Those who don't get their foreclosure notices in December will be more marginally more likely to spend in December just making their situation all the more impossible in January.

Are we really doing anyone a favor in that case?

This is not about Christmas spirit, it is about cold hard reality

[The Original RZ]

Delaying foreclosures means keeping potential buyers out of the market for that much longer.

[oh boy]

The question not asked here is: How is this possible?
Fannie and Freddie only guarantee the loan, but private individuals and entities own the debt. How is it that Fannie and Freddie can circumvent the contract? Those debt holders are not getting paid during the interim and have no recourse?

[somedude]

Merry christmas new buyers. You are all to blame for not keeping the housing bubble afloat. Now you'll pay with higher interest rates (as Laker pointed out).

[shockg]

My take is that "forestalling the inevitable" is understatement. When the dam has serious cracks in it, the best solution is to release the water fast using the known methods such as the valves aka foreclosures so that it can be fixed.
If we decide to hold the water by all means from flowing down aka freeze foreclosures, we will have the damn explode and demolished completely aka depression and dramatic over correction that will get houses to be prices cash value - not mortgages - as in $100,000 for median price in LA.

Translation: Laker is bitter that he will be renting forever.

[shockg]

It hurts whenever anyone doesn't DO WHAT THEY PROMISE. That's what mortgages are - a promise to pay for a house you are living in. Why should we "have a heart" for those who break they promises?

Let's all love the dishonest! NOT!

Posted by: Tim K. | November 21, 2008 at 12:01 PM

And Laker is encouraging homeowners to not do what they promised by walking away. Do you think for one second Laker is looking out for the best interest of all those families? Or is he looking out for his own wallet?

[Laker]

sfvrealestate,
I think the commission checks are no where to be found....I have big heart towards responsible, prudent, honest, home owners who are seeing their houses revert to the bank as they suffer financial hardship. I care less (zero) for liars, specuvestors, scumsters, squatters, deadbeats, those that sign mortgages they couldn't afford, etc.

shockg, I will not be a renter forever. I'm pretty confident that at the end of the day, you will be a renter, and i will be a home owner....that's what happens to specuvestors like yourself praying for his upside down house to get back to 2007 values, so you could refinance it and pull some equity to pay your bills.

Funny that you mentioned this but sometimes paying $4000 in ARMed mortgage is far worse than renting an equivalent house for $2000 per month. This is especially true when the house was purchased using nothing down 80/20 loan or alike. They lose nothing!

[Drew]

"Median house price for SFV $100,000? bring it on."

If you even remotely think this is a possibility you are so far gone into some bizarro fantasy world that there is probably nothing that can bring you back.