OVERLAND PARK, Kansas (Reuters) - Obama administration officials are wary of rising home foreclosures and are exploring options to increase help to beleaguered homeowners, though they were not immediately supportive of an industry proposal for overhauling Fannie Mae and Freddie Mac, the U.S. Treasury’s leading housing official said on Thursday.
“We’re seeing significant buildup in the foreclosure process,” said Michael Barr, assistant secretary for financial institutions in an interview with Reuters. “We’re seeing a number of people, given the state of the economy, who are having trouble staying in their homes,” said Barr, the Treasury’s assistant secretary for financial institutions.
Barr, who met here with U.S. Rep. Dennis Moore and consumer and business leaders in Kansas, said dire housing market conditions made it “absolutely critical” for the government to keep mortgage rates low, and expand a program of loan modifications.
He brushed off a proposal by the U.S. Mortgage Bankers Association to revamp housing finance giants Fannie Mae and Freddie Mac by creating several smaller, privately held companies that would issue mortgage securities with a government guarantee, saying it was not yet time to determine their future shape.
“It is important to think about the future of GSEs (government-sponsored enterprises) over time but it is not something we think we should address right now during the cycle of financial reform that we’re engaged in,” Barr said.
“Right now Fannie Mae and Freddie Mac are playing an absolutely critical role in ensuring that our mortgage market stays stable and strong in the financial crisis,” he said.
The U.S. Treasury put both Fannie and Freddie into a conservatorship with new management nearly a year ago as markets lost confidence in their ability to withstand mounting losses from subprime and other mortgage loans. The government effectively declared an explicit guarantee for their debt and mortgage-backed securities and has committed up to $400 billion in taxpayer capital to shore up the balance sheets.
The Treasury has relaxed the GSEs’ rules for refinancing, allowing them to refinance mortgages slightly exceeding a home’s market value at low rates, among other actions.
Barr said the government is looking at a variety of options to help bolster the housing market, but declined to provide specifics.
He would not say whether or not the government would extend an $8,000 tax credit for first-time home buyers that has bolstered housing sales but expires in November.
“We’re going to continue to take a careful look at a number of options to be sure that there is a way of stabilizing home prices, reducing the number of foreclosures, keeping mortgage interest rates low,” Barr said.
Officials have discussed actions such as extending unemployment benefits that are due to expire by year end, helping the jobless avoid home foreclosures, and bolstering programs to increase small business lending. Some of these could be accomplished by using unspent funds from the $700 billion bank rescue fund.
The Federal Reserve by year-end is expected to wind down its purchases of $1.25 trillion in mortgage backed securities by year end and $300 billion in longer-dated U.S. Treasury debt by the end of October. The purchases have been cited as holding mortgage rates close to record lows for much of this year.
The Treasury also purchases Fannie and Freddie mortgage backed securities on a monthly basis.
Barr also said the government planned to push banks to expand a loan modification program that so far has altered 300,000 mortgage loans and was on track for 500,000 loans by November 1.
He said 3 million to 4 million loan modifications were expected over the next few years, but banks needed to work more proactively to help borrowers with loan terms that will help them avoid foreclosure.
In addition to pushing banks to modify more loans, the government is asking Freddie Mac to audit denied modifications to determine if borrowers are improperly denied modification.
“We have seen improvements in the banks that were laggards before,” said Barr. “But there is more the banks can do... to get this program to reach more borrowers.” (Reporting by Carey Gillam)