December 6, 2008

US Focuses on Mortgage Foreclosure Pain

Finally, A Bail Out for Industry and For People

1. The Federal Reserve announces that it would spend 600 billion to buy mortgage backed securities issued by Fannie and Freddie, pumping some liquidity into the market. Interest rates dropped 1% on the news. This is not a trial balloon but a fact, a program to be put in place. The net result will provide some much needed cash for new loans and workouts for the two quasi public agencies.

2. Treasury is also considering buying 600 billion of mortgage backed securities from Freddie. Fannie and Ginnie Mae, causing a huge influx of mortgage re-fi's. Treasury is looking to use the buying power of Freddie and Fannie to push mortgage rates down to 4.5% by soaking up supply and providing a sense of trust because there are buyers of mortgage loans again.

3. The FDIC has a loss sharing plan which aims to reduce monthly payments to 31 percent of the borrower's income. This proposal is designed to promote wider adoption of such a systematic loan modification program:
a. by paying servicers $1,000 to cover expenses for each loan modified according to the required standards; and
b. sharing up to 50% of losses incurred if a modified loan should subsequently re-default

This proposal focuses on the fact that lenders have been slow to renegotiate or work out problem loans. FDIC thinks this plan can help the estimated 1.4 million non-GSE mortgage loans that were 60 days or more past due as of June 2008, plus an additional 3 million non-GSE loans that are projected to become delinquent by year-end 2009.

Reports indicate that we will be looking at 2.25 million foreclosures this year, up from just over a million last year and no doubt, getting worse. This is just not sustainable if we are to look at keeping industry afloat and start putting people back to work.

Finally....we are looking at helping people as well as industry. Although this amounts to a direct bailout of home owners and the nationalization of the worlds capital markets, it may be the only way of saving us from a complete collapse.

Thanks for Reading

Howard Bell

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