Federal Reserve extended lending aid for Bear Stearns & Co, a large publicly held home mortgage company who has been in financial trouble in recent years. The sub-prime home loans took their toll onn Bear Stearns, but they got a nice boost with the recent Fed moves. In conjunction with the move by the SEC, the Federal Reserve said Wednesday morning that it would extend additional emergency lending aid to non-bank financial institutions through the end of January. The primary dealer credit facility gives investment banks access to the Fed’s discount window, and was thrown open during the March blowup at Bear Stearns & Co.
The Fed said it was taking these steps “in light of continued fragile circumstances in financial markets.” GiAccording to Paul Jackson, investors are welcoming the finance news, however the extension opens up an ongoing debate over the Federal Reserve’s role in regulating investment mortgage banks. Commercial bankers have remarked for months now that the Fed should have regulatory authority over investment banks if they will be lending cash for any duration.
A story in the Wall Street Journal went so far as to suggest that the Fed’s move had less to do with the state of the investment banks, than it does with ensuring that the Fed itself remains in the driver’s seat with respect to the tone of the capital markets.
Freddie Mac, a government-chartered company, will also increase the time it gives servicers to negotiate with delinquent borrowers in Washington, D.C., and 20 states to 300 days from a range of 120 to 299 days, a spokeswoman said. The states are those with relatively fast foreclosure processes, Freddie Mac said.
Freddie Mac continues to struggle to contain billions of dollars in losses sustained since mid-2007 as the housing slump and home lending erodes more than expected. Speculation that losses will severely pinch capital positions at the company and rival Fannie Mae , the top U.S. mortgage funding company, led to sharp drops in their share prices since May and legislation this week to provide emergency financial backstops from the U.S. Treasury.Delinquencies on home loans guaranteed by Freddie Mac more than doubled in the year through May to 0.86%. According to Freddie Mac, the recent national delinquency rate calculated by the Mortgage Bankers Association is 6.35%.
HUD has helped fill the gap of loan purchasing from Freddie Mac and Fannie Mae with their government insured FHA home loans. Thje FHA home loan programs have expanded to help borrowers with adjustable rate mortgages refinance into a fixed rate mortgage. In addition, FHA announced a plan to roll out new down-payment assistance loans to help first time homebuyers get into the real estate marketplace.
Compensation to loan servicing companies that negotiate new payment plans and home loan contracts will double to $500 and $800, respectively, Freddie Mac said. For a mortgage servicer that completes a so-called short-sale, in which Freddie Mac accepts a sale price on a home below the balance of the mortgage, payments also double, to $2,200. Accepting short sales can result in less losses for mortgage lenders by ending the delinquency period and preventing ownership of the property through foreclosure.
Among new incentives, Freddie Mac said it will reimburse servicers for the cost of door-to-door programs in which lending services seek out troubled borrowers in person to discuss renegotiating their loans if that results in the borrower contacting the servicer. Loan servicing companies have also been stung because they must advance payments to home loan investors even if the mortgage is in arrears, and as they hire more skilled workers to negotiate with borrowers and underwrite the mortgage loans again.Loan servicing companies, often units of major mortgage lenders, this week said they increased the number of mortgages they have modified to more affordable terms last quarter.
