Why does the FHFA want to streamline mortgages?

Another initiative from the Federal Housing Finance Agency (here) is a must read for crisis junkies.  The money quote is ”

“Fannie Mae and Freddie Mac will offer a new, simplified loan modification initiative to minimize losses and to help troubled borrowers avoid foreclosure and stay in their homes. Beginning July 1, servicers will be required to offer eligible borrowers who are at least 90 days delinquent on their mortgage an easy way to lower their monthly payments and modify their mortgage without requiring financial or hardship documentation.”

Huh! Read it again. Here is what it is saying. If you cannot pay your mortgage, you can enroll in a program to lower your payments without documentation. And what is this program ? Reading further, it is a refi  to extend the maturity of the loan and lock in today’s low (ish) fixed rate. Bingo, your payments are lower and you have a better chance of meeting them.

Is this why our avuncular Government is called Uncle Sam ? Inquiring minds would want to know why such kindness is being extended to deadbeats. Could it be that the banking system cannot afford to foreclose on these loans? If this is true, it has to mean that the money recovered from foreclosure (at current, still low market prices) would not be enough to make many of the banks solvent. After 5 years of stress tests, no less. Some housing recovery this.


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