Fannie Mae and Freddie Mac Put Some Foreclosures on Hold

The move to put a temporary injunction on foreclosures is to help an estimated 16,000 borrowers. Plus, it will give Fannie Mae and Freddie Mac more time to work out the details of its “streamlined modification” program to restructure payment plans, scheduled to get underway Dec. 15.

Fannie Mae CEO Herb Allison said in a statement, “We felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent a foreclosure have an opportunity to stay in their homes.”

The announcement that Fannie and Freddie would stop foreclosures comes a week after their regulator announced that borrowers whose mortgage payments account for more than 38 percent of income could have their monthly obligation reduced.

Fannie Mae and Freddie Mac account for about half of the country’s outstanding residential mortgages, thus making their sustainability quite important. Adding additional weight is that they are among the few major mortgage lenders left standing after the sub-prime crisis of the past two years—as well as the fact that they are largely interwoven with global markets.

The U.S. Treasury put the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac) under a conservatorship controlled by the Federal Housing Finance Authority, Treasury Secretary Henry Paulson announced in September.

“Our economy will not recover until the bulk of this housing correction is behind us. Fannie Mae and Freddie Mac are critical to turning the corner on housing,” Paulson was quoted as saying by The Washington Post.

Strictly speaking, a conservatorship means that one organization takes another organization under control for a temporary period of time with the goal of rehabilitating it to normal and then reliquishing control. But although the Treasury had capped both companies’ mortgage portfolios at $850 billion as of the end of 2009, The Wall Street Journal reports that the “Treasury’s move doesn’t answer the question of what ultimately happens to Fannie and Freddie.” That decision rests with Congress. Shares of both Fannie Mae and Freddie Mac are still to be traded on the New York Stock Exchange.

Before Fannie Mae and Freddie Mac were taken under federal conservatorship, Treasury Secretary Henry Paulson announced the evening of July 13 that he was asking Congress for speedy approval of authority for the federal government to provide financial support to Fannie and Freddie. A week earlier, rumors about the two companies’ insolvency cut the value of their shares nearly in half.

As government-sponsored entities (GSEs), the two companies had enjoyed an implied federal guarantee of their obligations, and thus investors have allowed the GSEs to carry far more debt than would be allowed by an entity without the implicit federal guarantee.

Steps have been taken on the local and state levels to keep struggling mortgage holders in their homes.

Atlanta and Fulton, DeKalb, Gwinnett, Clayton and Cobb counties, which together comprise much of the Atlanta metropolitan area is to receive $81 million in aid to stem foreclosures by way of the federal Neighborhood Stabilization Plan, reports the Atlanta Journal-Constitution.

As of Oct. 13, Tom Dart, the sheriff of Cook County, Ill., where Chicago is located, was refusing to enforce any more evictions of county residents.  Dart maintains that the eviction orders often name the wrong party, or that the mandated 120-day notice was not given to the tenants. The Accredited Home Lenders has filed a lawsuit to force the sheriff to enforce court-ordered evictions. Dart argues that in many cases, families who have consistently paid their rent have been forced from their homes because their landlord failed to pay the mortgage, although he acknowledges that his policy also protects nonpayers.