When will specific details on streamline short-sale process be available?
A: We’re working with Treasury to get the rules out. There’s nothing that prevents someone from doing a short sale. No short sale is as good as a loan modification or loan refinance, but it’s better than a foreclosure. But we’re hoping the rules will make it easier soon.
With Making Home Affordable, the interest rates stay as low as 2 percent for five years. What was the thinking behind choosing a 5-year timeframe?
A: The thinking was that (the economy) will have recovered in 5 years. But even now, when the five years is up, your loan will go up to the interest rate we’re at now, when the loan is modified. So the Freddie Mac rate is 5.4 percent, and the interest rate on the loan will go up 1 percent per year until it gets there. So if you’re at 2 percent for five years, your interest rate will be at 5.4 percent in the ninth year. The thinking is that there needed to be some cap (to the interest rate) and the idea is that the economy will have recovered and people will recover financially.
What’s going on with multi-family housing policy?
A: Multi-family housing is very important in our priorities. We meet with both CEOs of Fannie Mae and Freddie Mac and our team has daily meetings. But we always discuss multi-family housing. One area (we discuss) is low-income tax credits. Right now, it’s harder for [investors] to buy multi-family real estate, but we’re looking at what they can do in that area.
Has the conservatorship been successful in turning around Fannie Mae and Freddie Mac?
A: turning around may be too strong a statement. We stabilized them. We will see continued losses from the 2005 and 2006 book of mortgages. That will continue to happen as delinquencies climb. What we have stabilized in their book seems to be profitable. They were not able to provide stability, liquidity and affordability to the secondary mortgage market. Now, they’re fulfilling their mission. My view is at the end of the day, some of those assets and liabilities may be left behind in a remerged conservatorship.
What is the difference between principal forbearance and forgiveness? The FDIC uses forbearance of principal.
A: I’ve been a fan of principal forgiveness. I was preaching principal forgiveness to Fannie Mae and Freddie Mac for the last two years. Under the federal government’s loan modification programs, there is the option to forgive principal. More importantly, the Hope for Homeowners program is being restructured and has principal forgiveness in it. As part of the loan modification program, lot of homeowners will be offered that.
Forbearance is the idea that 30 years from now, your house has tripled in price and shouldn’t the lender get some piece of that? You can argue back and forth which was is better, but forbearance would involve a balloon payment.
Will these loan modification programs be helpful without principal forgiveness in places like Florida?
A: It will be needed in certain situations. When it comes to refinancing, we are looking at going significantly higher than the 105 percent of debt-to-home value ratio that Fannie Mae and Freddie Mac are currently requiring for refinancing. We’re suggesting that maybe instead of reducing the homeowner’s payment, if you’re making your payment right now, of having those savings go into principal reduction. There are different alternatives and ideas being floated around. We want to concentrate people around one idea and go for the refinancing or loan modification. What we don’t want is for people to wait for the next best program. We did the streamline loan modification program and since there were rumors a better program was coming, we had no takers for that program. Also, there are a lot of people not answering the phone or reading their mail and need to get them to do that and say that a mortgage at 2 percent interest is a better choice.
Right now a homeowner who qualifies can refinance if his loan-to-value ratio is 105 percent. How much higher will it go?
A: We’re looking at maybe 125 percent.