[Sources: AP 4/16; Market Watch 4/17; WAPO, WSJ 4/19/07]
FREDDIE MAC AND FANNIE MAE ANNOUNCED PLANS TO PREVENT
SUB-PRIME BORROWERS FROM LOSING THEIR HOMES, IN THE WAKE OF
MONDAY’S CRISIS-MANAGEMENT MEETING. The {Post} reports that Freddie Mac
is
to buy about $20 billion of mortgages that would primarily refinance
the
loans of people in danger of losing their house, by buying fixed and
adjustable-rate mortgages with more affordable terms, which would
induce
lenders to make such loans to homeowners now struggling with sub-prime
loans. Fannie Mae announced a similar program on Monday. The two
companies
don’t actually issue the mortgage loans, but purchase mortgages from
lenders
and repackage them into securities. According to the {Wall Street
Journal},
neither company has been a direct buyer of sub-prime loans, but has
rather
purchased highly-rated portions of the sub-prime-based securities
issued by
Wall Street.
Although neither Freddie Mac or Fannie Mae has gained approval from
federal
regulators, according to the {Post}, they were represented at a
seven-hour
meeting of federal officials, bankers, and mortgage industry executives
convened by the FDIC on Monday, as reported by AP. That meeting
reportedly
agreed on the goal of preventing high-risk borrowers from losing their
homes
in a time of rising foreclosures.
On Tuesday, according to Market Watch, FDIC Chairman Sheila Bair
testified
at a House Financial Services Committee on the difficulty of sub-prime
borrowers getting relief from their lenders, even if the lenders are
willing, because about 75% of the $600 billion of sub-prime
adjustable-rate
mortgages issued in 2006 have been securitized and sold in a secondary
market. Bair testified that reworking the terms of the loan after it’s
been
securitized is very difficult because the lender no longer has the
power to
make arrangements with the borrower. Nonetheless, that what they are trying to do. To save some homeowners and save the bankrupt financial system.