White House's More Limited Foreclosure Relief Plan Criticized by FDIC Chairman
This week the Bush administration announced a plan to modify Fannie Mae and Freddie Mac loans for homeowners more than 90 days behind on payments. The modification program would ensure lower interest rates and monthly payments not exceeding 38% of monthly household income. However, the plan is criticized by many for not doing enough; the restructuring is only for five years and the 38% threshold is higher than HUD's affordability threshold of 30%. And while Fannie and Freddie own or guarantee nearly 60% of single-family home loans, the foreclosure rate on those loans is about 1.72 percent. The foreclosure rate is 20 percent for adjustable-rate subprime loans, and these loans are not covered by the plan.
FDIC Chairman Sheila Blair criticized the plan. "This is a step in the right direction but falls short of what is needed to achieve widescale modifications of distressed mortgages, particularly those held in private securitization trusts. As we lend and invest hundreds of billions of dollars to help institutions suffering leveraged losses from defaulting mortgages, we must also devote some of that money to fixing the front-end problem: too many unaffordable home loans."
For more, read "White House Scales Back a Mortgage Relief Plan" in the New York Times.
