Fannie Mae, Freddie Mac Help Fund Program for Foreclosure Homes- By: John Cutts
Fannie Mae and Freddie Mac, the two largest mortgage finance companies rescued by the federal government in September 2008, are going to fund a portion of President Obama’s program to reduce the number of foreclosure homes across the country.
President Obama’s foreclosure plan, which was set at $75 billion, will be funded with $20 billion from Freddie Mac and Fannie Mae in order to conserve the $350 billion given to the Obama administration for financial bailout in January. This $350 billion was part of the $700 billion Troubled Asset Relief Program (TARP) approved by Congress during George Bush’s administration. Obama and his advisers plan to use only $50 billion of the $350 billion to reduce foreclosure homes. They are setting aside the rest of the money for other programs to rehabilitate the economy, such as increase in bank capitalization, creation of an investment fund to acquire foreclosure homes and other bad assets from banks and stimulation of business and consumer lending.
The two mortgage corporations are themselves financially troubled, so the federal government will provide each of them with increased line of credit to $200 billion. This stabilization effort is one of the features of Obama’s program to stop the rising number of foreclosure homes.
The rest of the money for Obama’s $75-billion plan will be provided by the U.S. Department of Housing and Urban Development. This part will be used to finance counseling programs for borrowers who are also paying other types of debts, using up more than 50 percent of their monthly income for debt payments.
According to former Federal Reserve Governor Lyle Gramley, the tactic of using money from federal agencies to fund the program of reducing foreclosure homes is forward-looking. This will conserve the bailout fund for the stabilization of the financial sector, as Congress is not likely to add more to the funding already allocated.
Details of Obama’s program for foreclosure homes have not yet changed. The plan will still support interest rates so that monthly payments would be reduced. The cash incentives for mortgage lenders and balance reduction incentives for borrowers still remain. For each loan modification that a lender completes according to Obama’s guidelines, the lender would receive a cash incentive of $1,000. The lender would also receive an additional incentive of $1,000 for every year for up to three years if the borrower stays current with monthly payments. Likewise every borrower who keeps up with monthly payments will receive an incentive of up to $1,000 per year of updated account.
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John Cutts has been educated in the finer points of the foreclosure market over 5 years.