This article first appeared in the St. Louis Beacon, Nov. 25, 2008 - The real effect of Tuesday's announcement that the Federal Reserve would buy up to $600 billion in mortgages and mortgage-backed securities is not yet clear for troubled homeowners facing foreclosure, say two local nonprofit housing counselors.
"It could be a breakthrough for homeowners. Right now, loans residing in investor-owned securities are very difficult to modify; servicers are hamstrung by the regulations governing each bundle. If the Fed buys entire trunks of loans, it would have the power to change these stipulations, and that would finally allow for individual modifications," said Karen Wallensak of Catholic Charities.
The Fed's program would buy up to $100 billion in mortgages held by Fannie Mae, Freddie Mac and the Federal Home Loan Bank and another $500 billion in bundles of mortgage-backed securities issued by the agencies. The idea is to increase the flow of money into the housing markets and the availability of credit for mortgages.
Chris Krehmeyer, president and CEO of Beyond Housing, said that on the surface, the program might appear to be good news, but he wants to see more specifics. The question, he says, is whether the program can get at loans that aren't already, in effect, controlled by Fannie and Freddie.
"It seems a little innocuous at this point,'' Krehmeyer said. "The fact that they're buying from GSEs [government-sponsored entities] -- the government already controls them. That just frees up liquidity for the GSEs to buy more loans. That's not a terrible thing, but, again, the fact is that the government already in essence controls the loans.''
Krehmeyer said the Fed's other initiative announced Tuesday -- to provide up to $200 billion to stimulate auto and student loans and credit cards -- doesn't address bad home loans, which are at the heart of the economic crisis.
"We're still not getting resources to the genesis of the problem -- and that is people losing their homes to foreclosure. It's fine that someone can borrow money to buy a car, but that in my mind is just one of the two pieces that are necessary,'' he said. "I understand the macro-economic theory, but why wouldn't we act as aggressively to try and keep as many people in their homes as possible because we know all the residual and positive effects of that.''
Fannie and Freddie announced last week that they were suspending foreclosures and evictions on single-family properties between Nov. 26 and Jan. 9, while the agencies work with mortgage servicers to put into place a new streamlined loan modification program. The initiative applies to about 16,000 borrowers with loans owned or securitized by the agencies. Borrowers who owe three or more payments and remain in their homes are eligible.
Wallensak says she would like to see all servicers and lenders follow the lead of Fannie Mae and Freddie Mac and put a moratorium on foreclosures until the end of January.
"This would allow the Fed to activate its plans and give housing counseling agencies time to prepare workout requests for homeowners,'' Wallensak said.
Krehmeyer called the moratorium a "good but small step in rectifying the problem.''
But he pointed out that the 16,000 homeowners being helped by Fannie and Freddie this holiday season are just a portion of the borrowers who are facing foreclosure by private lenders
Krehmeyer estimates that his nonprofit agency will have assisted 1,000 St. Louis area homeowners with their mortgage problems this year, with one-fourth to one-third of those able to keep their homes.
"Our phone is still ringing,'' he said.
