Consumer Law

Today's Fannie/Freddie Relief Plan

By Alan White

By Alan White
The plan to modify loans controlled by Fannie Mae and Freddie Mac announced today, while a step forward, suffers from two major drawbacks.  First, Fannie and Freddie do not hold most of the delinquent subprime and alt-A mortgages, so the plan will affect only about 10% of delinquent homeowners.  Second, as an extension of the FDIC model for modifying IndyMac mortgages, the plan calls only for monthly payment reductions, not for principal reductions.  While it is a good thing to streamline the process, and set an ambitious target of reducing payments to 38% of income (compared with the 55% standard that prevailed in the subprime market), Fannie and Freddie, like the FDIC, are still proposing to defer mortgage debt that far exceeds home prices, rather than writing it off, i.e. kick the can down the road.  We still need to deal with the servicers and investors who control most of the problem mortgages, and we still need to attack the $10 trillion problem of the overleveraged homeowner.

Full post as published by CL&P Blog on November 11, 2008 (boomark / email).