UPDATE 1-Fannie Mae, Freddie Mac suspend some foreclosures

Thu Nov 20, 2008 6:32pm EST

(Adds analyst comment, company comment and background)

NEW YORK Nov 20 (Reuters) - Fannie Mae and Freddie Mac, the two biggest U.S. home loan finance companies, on Thursday said they would suspend foreclosures of occupied homes until early 2009, as the government moves to stem the tide of home losses plaguing the economy.

Fannie Mae FNM.P and Freddie Mac FRE.P said the hiatus on foreclosures -- which will run from Nov. 26 through Jan. 9 -- will give mortgage servicers more to work out easier borrowing terms for troubled homeowners.

Regulators and lawmakers have leaned harder on the two companies to help stabilize the crumbling U.S. housing market since they own or control about half of residential mortgages outstanding.

The government effectively seized Fannie Mae and Freddie Mac in a conservatorship in September amid concern that steep mortgage losses were hurting their ability to remain viable and thus backstop the mortgage market.

"This is another news item that the government is hoping will stem the tide of foreclosures," said Walter Schmidt, head of mortgage strategy at FTN Financial Capital Markets in Chicago. "But I don't know it helps, it could put off the inevitable" because falling home prices give homeowners incentives to walk away, he said.

The move by the two government-sponsored enterprises comes a week after their regulator unveiled a plan that could cut payments for hundreds of thousands of borrowers by easing terms on their loans. Homeowners facing foreclosure who are spending more than 38 percent of their income on mortgage payments could have payments reduced by the companies, under the program.

Loan modifications by lenders have increased but so far failed to stop record increases in foreclosures.

The "streamlined modification" program of Fannie Mae and Freddie Mac is slated to begin on December 15. Fannie Mae and Freddie Mac estimated their foreclosure suspensions may affect about 16,000 borrowers if the homes are occupied.

"We felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent a foreclosure have an opportunity to stay in their homes," Herb Allison, Fannie Mae's chief executive officer, said in a statement.

The foreclosure moratorium also appears to lend credence to speculation the government is pushing the companies to operate more in a public policy role, perhaps at the expense of profit. That has some investors concerned since the government has not defined the roles of the shareholder-owned companies after the conservatorships are lifted.

(Reporting by Al Yoon and Dan Burns)