Mortgage Foreclosure & Refinance Resource

Now, with the economy in full retreat and the jobless rate rising, borrowers and lenders in areas with previously marginal foreclosure rates are bracing for the worst.

As a result, the banking industry has taken pre-emptive measures to help borrowers. The best example is an initiative, announced this month, to help those who took out loans backed by Fannie Mae and Freddie Mac, the government-owned companies that buy conventional mortgages from a wide swath of lenders. The companies’ loans make up about 58 percent of single-family mortgages nationwide.

Lenders are willing to change the loan terms if homeownership costs exceed 38 percent of gross monthly income — a measure known as the debt-to-income ratio. Lenders use this benchmark for determining the size of a loan.

But a property tax increase or a job loss can push borrowers beyond that threshold. To stave off financial jeopardy, lenders are asking that anyone with a debt-to-income ratio exceeding 38 percent contact the company that sends the borrower’s monthly mortgage bill. These loan servicers, as they are known, can drop the interest rate, reduce the loan’s principal by as much as $100,000 and extend the repayment to 40 years, if doing so ensures the borrower can pay the loan, according to Ed Delgado, a senior vice president of Wells Fargo Home Mortgage.
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The Federal Reserve threw a massive life-line to consumers on Tuesday with two new programs aimed at making it easier for them to obtain loans for homes, cars and on credit cards.

Under the new mortgage program, the Fed will buy up to $100 billion of debt issued by government-sponsored mortgage enterprises Fannie Mae, Freddie Mac and the Federal Home Loan Banks. It will also buy up to $500 billion of mortgage securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae.

The central bank also launched a $200 billion facility to support consumer finance, including student, auto, and credit card loans and loans backed by the federal Small Business Administration. This will lend to investors who hold securities backed by this debt. [Read more →]

Breaking news from WashPost: Federal regulators seized three banks tonight, including Downey Savings and Loan Association, a large California mortgage lender, expanding what is by far the most expensive crop of bank failures in modern American history and indicating that the pace of failures is increasing.

The Federal Deposit Insurance Corp., which took control of the banks, said holders of about $1.9 billion in Downey mortgage loans who have fallen behind on their payments would now be eligible for reduced monthly payments to help them avoid foreclosure. The unprecedented move in connection with a bank failure expands the agency’s controversial loan-modification program, which is opposed by other parts of the Bush administration.

Downey, with $12.8 billion in assets, is the third-largest bank to fail this year, after Washington Mutual and IndyMac Bancorp. All three institutions were large mortgage lenders focused on the California market and regulated by the Office of Thrift Supervision. [Read more →]