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Sunday, September 14, 2008

Reviewing Mortgage Backed Securities’ policies

Sept 13,2008
Freddie Mac and Fannie Mae bailout by the Government accomplished one part of the hoped-for effect: longer term mortgage rates plunged to levels not seen for months.

At the same time four U.S. Senators proposed a freeze of foreclosures on mortgages held by the companies for 90 days and immediate action to assist homeowners by modifying delinquent loans.

Even though Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke have encouraged lenders and loan servicers to facilitate such modifications neither Freddie nor Fannie have gone as far as many private lenders in doing so.

A foreclosed mortgage usually pays the lender $0.30 on the dollar but a mortgage that is modified so as to be affordable for the borrower pays nearly $0.90.

The Senators asked that the GSEs review their policies governing loans involving Mortgage Backed Securities in order to keep families in their homes and maximize the value of these assets. The proposed changes would also reduce risks to taxpayers and alleviate the downward pressure on house prices.

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