Last month, Illinois Attorney General Lisa Madigan won a lawsuit that forced Countrywide Financial to establish an aggressive
loan modification program to help an estimated 21,000 people in
Illinois facing foreclosures. At the time, she described it as a "model that
other lenders and services as well as the U.S. Treasury should
look at."
In that vein, Fannie Mae and Freddie Mac announced yesterday that they plan to adopt a similar program in the hopes of stemming the foreclosure tide. Like the Countrywide loans, which are now owned by Bank of America, the two government-backed agencies will begin adjusting the terms of at-risk mortgages based on income. The New York Times explains:
The program would be open to people who are at least three months delinquent on mortgages that are either owned or guaranteed by Fannie Mae or Freddie Mac. The goal would be to reduce the monthly payments on all of those loans — by stretching the term to 40 years, or lowering the interest rate, or even lowering the amount of the loan — so that payments would not be higher than 38 percent of a family’s monthly income.
The measures are exactly the sort of concessions that the Woodstock Institute, an Illinois-based housing policy group, has been calling for since early on in the meltdown. JP Morgan Chase recently announced that it too will begin using income as a key factor in resetting home loans. Obviously the foreclosure crisis extends well beyond the loans issued by these four mortgage providers and housing activists are stressing the need for more widespread action.
It's not hard to see why. A new housing survey in the Chicago-area -- which not long ago was considered a relatively strong market -- found that a growing number of people are being forced to sell their homes at a loss.
That's going to add up to more trouble, warns Sheila Bair, chairman of the Federal Deposit Insurance Corp. Based on a decision to channel the remainder of the economic relief package to banks and financial institutions, it doesn't appear that the Bush administration is listening. Bair, however, is still eyeing the most prominent potential source for additional homeowner relief: what's left of the $700 billion bailout.
