Recently, four Democratic senators called on the FHA, the regulator now in charge of Fannie Mae and Freddie Mac, to assist homeowners who are in jeopardy of defaulting on their mortgage and losing their home in foreclosure. A three month moratorium was proposed for new foreclosures for mortgage loans owned by the Fannie Mae and Freddie Mac.
Secretary Paulson persuaded a few mortgage lenders to give delinquent borrowers an extra month to negotiate modification or repayment plans before seeking foreclosure. As they prepare to go large-scale, regulators have been keeping an eye on how the Federal Deposit Insurance Corporation, which oversees failed banks, does things. The FDIC has taken several steps to make it easier for struggling borrowers to repay their mortgages and stay in their homes.
Last month, The FDIC began issuing loan modifications by offering 25,000 borrowers from failed mortgage bank, Indy Mac Bank. The loan modifications provided lowered fixed interest rates that were intended to make their mortgage more affordable. It offered to trim interest rates on loans to as little as 3% in some cases, and offered a number of borrowers 40 and 50 years for repayment. Stretching out the amortization of these mortgage payments 10 or 20 years significantly lowers their monthly payment.
Many of these recently modified loans could still default even after they were modified with reduced loan payments said Bert Ely, a financial consultant who has been critical of the F.D.I.C. modification plan.
"If you do a bunch of mass modifications with borrowers who still can't handle the modified loans for any number of reasons, all you have done is rolled the foreclosure into the future," Mr. Ely said.
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