WASHINGTON — Fannie Mae, Freddie Mac, and their regulator are consulting with the Federal Deposit Insurance Corp. on ways to speed up modifications of loans serviced by the failed IndyMac Bancorp.
At a hearing in the House Financial Services Committee, the new top executives of the government-sponsored enterprises said they are also working to step up modifications industrywide.
The FDIC announced last month that it would try to systematically identify and modify loans held and serviced by the thrift, which collapsed on July 11. Though the FDIC could more easily assure changes in the $15 billion of mortgages IndyMac owned, it was unclear how much of the rest of its servicing portfolio could be modified. Cooperation from Fannie and Freddie would help that effort. (IndyMac services about $170 billion of loans that it does not own.)
"We are in discussions with IndyMac and the FDIC to evaluate how we can best integrate the FDIC-announced, streamlined loan modification program into our own loss-mitigation efforts related to those loans IndyMac services," said Herbert M. Allison, the president and chief executive of Fannie Mae.
Federal Housing Finance Director James Lockhart said his agency also is involved. "We had already asked the enterprises to facilitate the loan modification program the FDIC has undertaken with IndyMac Federal," he said. "I expect the ongoing work on loan modifications being done there, and with other seller-servicers, to continue to be a high priority for the conservatorships, both as a matter of good business and as a matter of supporting the enterprises' mission."
In an interview after the hearing, Mr. Lockhart said he is also hoping the new Treasury proposal to buy troubled assets would increase the number of loan modifications. He said he also hoped Fannie and Freddie could sell some of their troubled assets to Treasury. That would also be a way "to help homeowners," he said.
"I think the way that everything can help homeowners is if we can get these assets and get them worked in a way that loan modifications can be done," he said. "Many of these people need to have their loans modified, interest rates lowered, extend the terms, whatever it is, so that people can afford these mortgages."
During the hearing, Mr. Lockhart also touched on another hot-button topic for the mortgage industry. He said an agreement among New York Attorney General Andrew Cuomo, the GSEs, and his agency to toughen appraisal standards would take effect later than the originally planned Jan. 1 deadline.
Bankers had been hoping for even more. They had argued that the agreement, which would set appraisal standards for all those that want to sell to Fannie and Freddie, including a ban on in-house appraisals, was illegal and should be scrapped now that the GSEs are in conservatorship.
But Mr. Lockhart said that — though the standards have been altered — the agreement will be completed soon.
He suggested, however, that the most controversial element, banning in-house appraisals, may be retained.
"We strongly support the independence" of appraisals, he said.
During the hearing, the first devoted to the GSEs since the government seized them on Sept. 7, Mr. Lockhart said Fannie and Freddie had avoided modifying some loans in their portfolios because removing the loan from a securitized pool would have caused the companies to take a loss.
Since their takeover, Mr. Lockhart told the committee, Fannie and Freddie have increased the incentives they offer servicers to modify loans, and he said he would also work with the new executives to "modify business practices" in order to avoid delay in pulling single loans from securitized pools when they became delinquent.
Rep. Keith Ellison, D-Minn., asked Mr. Lockhart whether affordable housing goals set by the Department of Housing and Urban Development were to blame for the GSEs' downfall. Mr. Lockhart said the original standards set by HUD were overly aggressive for the current marketplace. HUD stepped up the goals for the companies in 2004, in part as a way to emphasize the companies' mission to help low-income borrowers. But those loans were among the hardest hit by the housing slump.
"As they escalated, it became harder and harder for the two companies to meet those goals," he said. "Sometimes they had to stretch, and sometimes that stretch meant that they potentially lowered their underwriting standards. Certainly, they got credit for many of the subprime mortgages in those AAA securities."
