Hop, Hop, Hoppin’

In between one high-profile foreign trip and another, President Obama last week
made time for public appearances on the financial front. The first was, however, a
surprising one – we can’t remember the last time the President of the United States
called in the press assembled to launch a website. To be sure, it’s a cool website that
helps mortgage borrowers access the government’s foreclosure-prevention programs
– or at least it will once it’s finally built. The version the President trumpeted on
Thursday is in fact still under construction. This left some of us scratching our
heads, wondering what might have been quickly deleted from the President’s
pronouncements because of internal disagreements or other obstacles to more
substantive action steps.

Perhaps the most noticeably absent idea in the President’s announcement was a plan
on which rumors swirled last week to extinguish second liens. This was authorized
in the rewrite of the Hope for Homeowners (H4H) program enacted late last year
(see FSM Report MORTGAGE73). H4H was first approved in July (see FSM Report
GSE105) with HUD at the time saying it would help one million homeowners. CBO
offered a more modest assessment – 400,000 – but to date it seems that only one or
maybe two borrowers have used it. This is in part the result of remaining obstacles –
most notably large principal write-downs – the House has tried to remedy in
legislation passed earlier this year (see Client Report MORTGAGE84). The bill is,
however, stalled in the Senate because of potential links to the contentious
cramdown measure (see FSM Report MORTGAGE79). As a result, advocates have
pushed the Administration to use the clout its got now to cut as many barriers to
foreclosure-prevention as possible.

Second liens were reportedly first up here, but the industry has also been abuzz with
other options also left undone last week. Among these are the final details of other
key pieces of the Administration plan – the new loan-modification requirements and
the principal-reduction guarantee using TARP funds. Without these programs, the
thrust of the loan-mod program remains housed at Fannie Mae and Freddie Mac,
which have been pushing refinancings to the limits of their charters and, some say,
beyond. Rep. Scott Garrett (R-NJ) and others have objected to GSE refinancings at
high loan-to-value ratios, but the Federal Housing Finance Agency (FHFA) stands
firm on this program and Congressional objections show no signs of being able to
stop it.

This is not to say, however, that the GSEs stand unquestioned. Last week, press
reports highlighted the sharp differences in the fees required by Fannie versus
Freddie when refinancings are purchased. These so far have affected only bond
pricing (due to different anticipated prepayment speed). However, consumer
advocates have questioned why one GSE in conservatorship is charging higher fees
than the other when both are now essentially government-owned and operated
corporations. Here too FHFA is standing its ground, arguing that the GSEs remain
shareholder-owned firms even in conservatorship. As a result, the regulator believes
each GSE can still chart its own business course. Maybe so, but we expect a tough
review shortly after the recess when Realtors, home builders and others join
consumer advocates in questioning whether the GSEs are doing their best standing
behind the President as Mr. Obama continues to man his bully pulpit on behalf of
foreclosure prevention.