The Broader Market

By John Griffith and Jordan Eizenga

More than five years into what is arguably the worst foreclosure crisis in American history, millions of families are still at serious risk of losing their homes. Nearly one in four homeowners is “underwater,” meaning they owe more on their mortgage than their home is worth, and more than 7 million homes are still in the foreclosure pipeline, according to analysis from Morgan Stanley. In fact, some analysts predict we’re only halfway through the crisis.

The big question before lenders, investors, and policymakers today is how to avoid another wave of costly and economy-crushing foreclosures. There are several ways to lower an at-risk borrower’s monthly payments and increase the chance of repayment: refinancing to today’s historically low interest rates, extending the loan’s terms, modifying the interest rate, deferring payments, or lowering the amount the borrower actually owes on the loan—so-called “principal reduction.” In most cases the lender or mortgage investor responsible for the loan considers all of these options when deciding which intervention is best for the specific borrower.

That is, unless the loan is owned or guaranteed by Fannie Mae or Freddie Mac, the country’s two biggest mortgage finance companies. Fannie and Freddie have yet to embrace one option—principal reduction—as a viable foreclosure mitigation tool.

By John Griffith and Jordan Eizenga

More than five years into what is arguably the worst foreclosure crisis in American history, millions of families are still at serious risk of losing their homes. Nearly one in four homeowners is “underwater,” meaning they owe more on their mortgage than their home is worth, and more than 7 million homes are still in the foreclosure pipeline, according to analysis from Morgan Stanley. In fact, some analysts predict we’re only halfway through the crisis.

The big question before lenders, investors, and policymakers today is how to avoid another wave of costly and economy-crushing foreclosures. There are several ways to lower an at-risk borrower’s monthly payments and increase the chance of repayment: refinancing to today’s historically low interest rates, extending the loan’s terms, modifying the interest rate, deferring payments, or lowering the amount the borrower actually owes on the loan—so-called “principal reduction.” In most cases the lender or mortgage investor responsible for the loan considers all of these options when deciding which intervention is best for the specific borrower.

That is, unless the loan is owned or guaranteed by Fannie Mae or Freddie Mac, the country’s two biggest mortgage finance companies. Fannie and Freddie have yet to embrace one option—principal reduction—as a viable foreclosure mitigation tool

Partially excerpted from Bond Buyer:

by Jennifer DePaul

The liberal think tank the Center for American Progress has proposed a plan to promote a new source of financing for troubled state housing finance agencies — the House America Bond.

A HAB would be a taxable, direct-pay bond, modeled after the Build America Bond program, which was created as part of the American Recovery and Reinvestment Act of 2009….

Jordan Eizenga, a member of the economic policy team at CAP and the author of the proposal, said issuers would not need a 35% subsidy rate, as that rate may have been too generous.

For more, see here.

by Peter Swire and Jordan Eizenga