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Fed Trying To Assist Distressed Borrowers

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By JEANNINE AVERSA and ALAN ZIBEL The Associated Press

The Tampa Tribune

Published: January 29, 2009

WASHINGTON - The Federal Reserve is taking steps to keep some distressed borrowers in their homes, but it may not make much of a dent in the nation's housing crisis.

The new relief plan would apply to the billions of dollars of mortgage assets the Fed is holding on its books because of last year's bailouts of Bear Stearns and insurer American International Group. Borrowers have no way of knowing whether their mortgages are held by the Fed, because their loan payments are collected by other companies, known as loan servicers.

However, the amount of mortgage securities in question, valued at up to $74 billion, pales in comparison to the $1.75 trillion in outstanding risky loans, according to trade publication Inside Mortgage Finance.

"It's a small step forward," said Jim Carr, chief operating officer of the National Community Reinvestment Coalition, a consumer group in Washington. "If the goal is to stem the foreclosure crisis, this won't do it."

The central bank is buying up to $500 billion in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. It also has agreed to buy up to $100 billion of Fannie and Freddie debt. Mortgage rates have fallen in the wake of the program's announcement late last year. The Fed said it could buy more of these securities or extend the length of the program.

Under the Fed's new foreclosure prevention effort, homeowners may get a reduced interest rate, longer loan term or a lower total mortgage amount.

In general, a borrower must be at least 60 days delinquent to qualify for help, although the Fed has leeway to make some exceptions.

"The goal of the policy is to avoid preventable foreclosures on residential mortgage assets that are held, owned or controlled by a Federal Reserve Bank," Fed Chairman Ben Bernanke wrote in a letter Tuesday to Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.

More than 2.3 million homeowners faced foreclosure proceedings last year, a whopping 81 percent increase from 2007. And more than 860,000 properties nationwide were repossessed by lenders last year, more than double the 2007 level, according to RealtyTrac, a California-based foreclosure listing firm.

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