Here’s a Reuters piece on the Federal Reserve action announced today. Personally, I think it isn’t going to help much at all – it’s fluff to make people think something is being done.
WASHINGTON (Reuters) – The Federal Reserve on Tuesday took a step toward easing mortgage foreclosures threatening millions of Americans, announcing that it would write down troubled mortgages to keep people in their homes.
In a bold effort to unscramble complex mortgage-backed securities at the heart of a financial crisis sparked by the housing market decline, the Fed said it would encourage mortgage servicers to modify loans at risk of default. It will also “assist” the loan servicer in making modifications, according to a document made public by the Fed on Tuesday, entitled “Homeownership Preservation Policy for Residential Mortgage Assets.” The Fed said it would consider reducing the interest rate paid on mortgages at risk of default, extending the term of the loan, and accepting “a deferral or reduction of the outstanding principal balance of the loan,” according to the Fed document.
Fed Chairman Ben Bernanke said the initiative would specifically include $74 billion of assets held in connection with the bailout last year of Bear Stearns and American International Group.
“The goal of the policy is to avoid preventable foreclosures on residential mortgage assets that are held, owned or controlled by a Federal Reserve Bank,” he said in a letter to Rep. Barney Frank, chairman of the House of Representatives financial services committee.
The Fed was instructed by the law last year that authorized a $700 billion bank bailout with public money that it must do what it can to minimize foreclosures.
Frank, a Massachusetts Democrat, has been among U.S. lawmakers pressing the Fed and the government to do more to prevent mortgage foreclosures and he said the decision by the Fed was a “major breakthrough.”
Here’s the problem:
- You have to be at least 60 days late. So hurry up and get 60 days late?
- You have to be able to make the payments on the modified loan, but not on the existing loan.
- Loan modification eligibility requires that the modified loan has a greater net present value than the foreclosure. So if you want to keep your home, but it’s not worth their effort, the Fed says, “Nahhh . . .”
- It only applies to mortgages the Fed wholly owns or controls, which at the moment are those it took over from Bear Stearns, JP Morgan Chase and AIG, a small subset of the millions forecasted by RealtyTrac to be entering foreclosure proceedings this year. If your mortgage is part of a Mortgage-Backed Security or Collateralized Debt Obligation pool – and it probably is – the Fed can only “encourage the servicer for such securities to implement a loan modification program that is consistent with this policy.” Presumably, such “encouragement” can only include the tactics specified in the US Army Field Manual, but no more.
- There is no way for homeowners to figure out if their mortgages are being held or controlled by the Federal Reserve. So you have to wait until somebody – anybody – eventually calls you. Hope you can pay your phone bill.
Kim Hannemann, Real Estate Consultant/Realtor®, Samson Realty
Cell: 703-861-9234 • Fax: 703-896-5055 • Email: KimTheAgent@gmail.com It’s Good To Have A Friend In The Business®
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