WASHINGTON -
While some talk surrounded a federally backed finance scheme to fund new mortgages for the affected borrowers, that approach was widely rejected by Republicans on the key congressional panels. "I can't agree to a bail-out. I don't believe in paying taxpayer money," said Rep. Spencer Bachus, the ranking Republican on the House Financial Services Committee, during a hearing on the issue last week.
Several states are also looking to create funds to bail-out troubled subprime lenders.
At last week's hearing, Fannie Mae and Freddie Mac, under siege during reform proposals for their ongoing accounting woes, introduced new programs aimed at helping troubled borrowers. The products would, in essence, lower conforming market standards for loans made to refinance mortgages in foreclosure.
Fannie Mae CEO Daniel Mudd said his company's program, dubbed HomeStay, will provide borrowers with a variety of work-out options, looser credit requirements and opportunities to refinance before subprime mortgage rates spike.
Freddie Mac was prepared to offer similar options, its CEO Richard Syron told the financial services panel.
The two secondary mortgage market companies, of course, are in the middle of a five-year battle over legislation that would tighten federal oversight of their operations.
At the same time as last week's hearing was going on, NCUA joined other financial regulators in urging credit unions and banks to work with homeowners who may be having difficulties making mortgage payments. Institutions will not face regulatory penalties if they pursue reasonable workout arrangements with borrowers, the regulators said.
Workouts could entail modifying loan terms or moving borrowers from ARMs to fixed-rate loans. Banks and thrifts that move borrowers from higher-cost loans to lower-cost mortgages could also be considered for favorable treatment under their Community Reinvestment Act obligations.
Credit union representatives were discussing the potential for assistance last week through the CUNA-sponsored HLPR loans, which provide discounted ARMs to low- and moderate-income homebuyers.
In a letter to credit unions last week, NCUA Chairman JoAnn Johnson said that prudent workout arrangements can be in the long-term best interest of both credit unions and their members. "NCUA encourages credit unions to consider reasonable workout agreements, whenever sound, that allow members to keep their homes," said Johnson in the directive.
Still, NCUA and credit union executives remained convinced that few credit unions will be harmed by the ongoing troubles in the subprime market, though many of their members who bought subprime mortgages elsewhere, may be.
