In light of what many view as the failure of their Foreclosure Alternatives Program (FAP), the U.S. Treasury announced on Christmas Eve that it was removing limits on federal financial aid for Fannie Mae and Freddie Mac, the companies which were seized by the government in September 2008 amid mounting mortgage losses. Restrictions had capped aid at $200 billion for each firm: Freddie has tapped $51 billion and Fannie has used $60 billion to date.
The government said it was removing the caps to “leave no uncertainty about the Treasury’s commitment to support these firms as they continue to play a vital role in the housing market during this current crisis.”
This helps the Marin property owners in at least three ways:
1. Now that these companies are fully backed, without condition, by the U.S. government, which controls 70% of each firm, the companies can borrow at the most favorable rates. After all, with the Federal security net, there is no risk to a lender. Freddie and Fanny can then make mortgages at lower rates. Ergo, cheaper mortgages for buyers.
2. The Treasury, by now permitting Freddie and Fannie to retain larger mortgage-asset portfolios, will allow them to provide more significant loan modification assistance to greater numbers of seriously troubled Marin borrowers.
3. Most important, they will reduce the principal amount owed by borrowers who are delinquent or upside down, something not permitted until now. While some mortgage companies had reduced interest rates to lower payments for delinquent borrowers, none had been willing to reduce the principal owed. Owners who have equity in their home will be less likely to walk away or allow the home to go into default.
What next, Jumbo Loans?
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Posted by Jack McLaughlin 
