Now that the government controls the GSEs (Fannie Mae and Freddie Mac with their $6 Trillion dollar mortgage portfolios, they could freeze all foreclosure actions dead in their tracks. That is exactly what a group of Senators including Bob Casey, Charles Schemer, Robert Menendez, and Sherrod Brown asked the new GSE conservator, FHFA Chief, James Lockhart to do.
AP reports it this way,
“The senators — Sherrod Brown of Ohio, Bob Casey of Pennsylvania, Bob Menendez of New Jersey and Charles Schumer of New York — wrote that the companies should “take whatever actions are necessary” so more families “do not have to suffer the economic and personal disaster of foreclosure.”
Is Freezing Foreclosures a Good Idea?
Now that the government is on the hook for most of the bad loans, if freezing foreclosures could stabilize the real estate market allowing for banks and borrowers to have more confidence in real estate values, it would be a good thing. Loosening the mortgage credit availability would put more buyers out looking for homes they can mortgage. Increased foot traffic in new and existing homes for sale leading to more contracts and closing all sounds good.
For all these good reasons, you can bet the Feds will not freeze foreclosures!
Why Won’t They Freeze Foreclosures?
The real danger with this plan if implement is the destruction of Fannie and Freddie. This plan would effectively kill the GSEs. Modified loans don’t return to the investor the same return the investors who bought them expected. Investors get jipped and jipped investors don’t come back.
If Paulson wanted to kill the GSEs, he would not have bothered with a “conservatorship”…he would have just immediately nationalized them.
For this reason, I doubt if we see Hank Paulson and James Lockhart bend to the Senators’ request to freeze foreclosures or in the business of wholesale loan modifications. They eventually want to return Fannie and Freddie back to the business of creating and managing the secondary market for mortgage loans albeit with a little more regulation or fully privatized. And let’s not forget, the mortgage servicing companies didn’t get taken-over, they can still lobby Congress, and they hate this plan.
So, as expected, no help for home owners with a foreclosure freeze.
At least Chuck Schumer got his name in the paper again standing up for the little guy!