Fannie and Freddie, which the government now owns, may refuse to participate
Foreclosures have been slowing recently, but not because government mortgage modification programs are working. Instead, the banks have been struggling to revamp their procedures after flaws were exposed last fall. The federal programs continue to provide a mere trickle of modifications as homeowners either aren't qualifying or servicers aren't finding the incentives in place very enticing. Will revamping the programs help?
The Wall Street Journal's Nick Timiraos reports that the Obama administration is considering new options to prevent foreclosures:
Policy ideas include having taxpayer-owned mortgage giants Fannie Mae and Freddie Mac relax their rules for loans to investors, allowing those buyers to vacuum up excess housing inventory. In certain markets, Fannie and Freddie could hold some foreclosed homes off the market and rent them out to ease the property glut.
Officials also could sweeten incentives for banks to reduce loan balances for borrowers who are underwater, or owe more than their homes are worth.
Even if such new programs could help in theory, they may not work in practice. Despite taxpayers owning Fannie and Freddie, the government appears to lack either the will or the authority to force the companies to go along with its policies.