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Govt. Announces New Help for At-Risk Mortgages

UPDATED at 2:44 p.m.:

Here are some details on the federal re-work of at-risk mortgages, per an interview on CNBC just concluded with James Lockhart III, chief Fannie and Freddie regulator:

- Interested homeowners should contact their mortgage servicer to sign up for the program.

- The idea is to fix an at-risk mortgage at 3 percent over a 40-year period.

- Even if a mortgage-holder's principal is reduced through the program, there could be a balloon payment at the end if they sell their house, Lockhart said.

- The program will take effect on Dec. 15.

- Lockhart said he thinks the program will "prevent tens of thousands" of mortgage-holders each month and, over the course of the next two years, hundreds of thousands to millions.

James Lockhart III, head of the Federal Housing Finance Agency, moments ago rolled out a new plan for modifying mortgages for homeowners who are in danger of losing their homes with the aim of slowing the default rate.

"Foreclosures have increased 150 percent in the past two years," said Lockhart, the regulator of Fannie Mae and Freddie Mac. "We need to stop this downward spiral."

This is the plan reported today by The Post's Zach Goldfarb.

The program seeks to cap mortgage payments at no more than 38 percent of the homeowner's monthly income and would reduce or move around principal.

"The companies would do that by extending the loan term, reducing the interest rate and, if necessary, delaying payment on a part of the principal of the loan. If a borrower is able to meet payments for three months, the change becomes permanent," Goldfarb wrote.

Lockhart said that the risky "sliced and diced" mortgage-backed securities account for only 26 percent of all mortgages but 60 percent of the "serious delinquencies."

As the press conference was underway, the Dow Jones industrial average started to climb a bit. About 30 minutes before the press conference, the Dow was down 2.8 percent, or 252 points. It is now down 1.6 percent, or 146 points.

Here's a statement from FDIC chairwoman Sheila Bair:

"This is a step in the right direction but falls short of what is needed to achieve wide-scale modifications of distressed mortgages, particularly those held in private securitization trusts.

Given continually rising foreclosures and their impact on the economy, we must address the need for appropriate economic incentives to prevent unnecessary foreclosures.

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.

We are pleased that the protocols announced today draw from the loan modification metrics we have instituted at IndyMac.

However there are questions that remain about implementation.

These include allowing extended amortization prior to interest rate reductions, whether payment increases are capped for the life of the loan, the use of higher interest rate caps, and sufficiently granular reporting to determine compliance and results."

-- Frank Ahrens

The Ticker is Twittering!

By Frank Ahrens  |  November 11, 2008; 2:16 PM ET
Categories:  The Ticker  
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