by Amy Lillard
(4-26-07) As the woes from the subprime meltdown increase, and millions of Americans face foreclosure in the coming years, mortgage giants Fannie Mae and Freddie Mac have pledged at least $20 billion in a new “Homestay” program, designed to help homeowners in danger from the market.
Fannie Mae's CEO and president, Daniel Mudd, revealed the new plan at the U.S. House Committee on Financial Services hearings last week.
The plan is built on refinancing subprime borrowers into new 40-year fixed-rate loans to prevent immediate foreclosure. The companies will purchase $20 billion in fixed-rate and adjustable-rate mortgages in order to offer them to current subprime borrowers by mid-summer.
Immediately, critics and pundits pounced on the plan.
California representatives in particular lauded the effort, but noted that the refinancing programs will be virtually meaningless in most areas in the state, where the median home price significantly exceeds limits set by the mortgage companies.
Other lawmakers noted the restrictions that negate the good intentions of the plan. Refinancing is only aimed at homeowners with good credit, not those in some state of foreclosure. In effect, those in direst need are left to work out a solution on their own. Many critics say the program does not go far enough, instituting a moratorium on future foreclosures until homeowners and the economy can adjust to the new reality.
The presentation of the Homestay program was one measure offered in the midst of tumultuous hearings on Capitol Hill. Lawmakers are increasingly feeling the pressure to do something about the rising debacle that is the subprime meltdown, and to help their constituents, particularly black and Hispanic homeowners, that face foreclosure and devastation.
>Subprime mortgages, those offered at high rates for borrowers with credit that would usually not warrant a loan, have imploded in recent months. Homeowners are increasingly unable to make payments on mortgages with unreasonable terms, loans are defaulted, and many mortgage companies have gone under. The housing market has felt the pain, and some say it's only a matter of time before the effects are felt throughout the economy in the form of a recession.
Mudd presented his plan to Congress as assisting those in need, and preventing future problems. He outlined the plan as three parts:
The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac) are publicly-traded companies that provide government-sponsored home loans at a lower interest rate.