Your Questions Answered
There are a few questions about Freddie Mac that come up regularly here on the blog, through emails, or in our conversations with borrowers, customers, taxpayers, and others. This week, I'd like to answer three of the most-asked.
Question: It's been three and a half years since taxpayers first bailed out Freddie Mac. How much longer is this going to go on?
Answer: The federal government placed Freddie Mac into conservatorship in September 2008 and is gradually contracting our operations and market presence as Congress develops an alternative housing finance system. At the same time, we're serving as a vital and steady source of mortgage funding throughout the housing crisis – funding that was lost when the market for private-label securities (i.e., securities that weren't insured by us, Fannie Mae, or Ginnie Mae) dried up. The $361 billion in liquidity we provided the market last year helped nearly 1.9 million families finance or rent a home.
We're currently operating under an agreement with the U.S. Treasury Department that maintains our positive net worth. Freddie Mac pays taxpayers a quarterly dividend on the funding we've received under this agreement, at an interest rate of 10 percent. Our dividend payments in 2011 totaled $6.5 billion.
We're acutely aware of the American taxpayers' investment in Freddie Mac, and we're working hard to protect that investment and build a stronger foundation for the future housing finance system. The decision on what that system will look like – and how and when conservatorship will end – rests with Congress and the Administration.
Question: Foreclosures are hurting property values in my neighborhood. Why aren't you doing more to help families save their homes?
Answer: We take this subject very seriously and have devoted significant resources to preventing foreclosures and keeping families in their homes. Since 2009, we've worked with servicers to help more than 615,000 struggling borrowers avoid foreclosure. About eight out of 10 of those borrowers were able to stay in their homes.
The innovative steps we've taken include:
- Implementing new servicing requirements that give distressed borrowers a better opportunity to avoid foreclosure through loan modifications and other workouts
- Expanding our Borrower Help Center network and the free counseling services it provides distressed borrowers
- Introducing a mortgage servicer scorecard that stresses early intervention and finding solutions for struggling homeowners
- Participating in hundreds of foreclosure prevention workshops nationwide
- Partnering with nonprofits to hold direct-to-homeowner auctions of Freddie Mac-owned properties
Refinancing is one way borrowers can make their mortgages more affordable. We helped 1.2 million homeowners refinance in 2011, and on average they saved about $2,300 in annual interest payments. Enhancements to the federal Home Affordable Refinance Program that took effect on March 15 allow us to further expand the refinance assistance we can offer homeowners. For example, a key enhancement was the elimination of the 125 percent loan-to-value ratio ceiling that had prevented many "underwater" borrowers from refinancing.
Question: Why is it so hard to get a mortgage loan? I thought this was supposed to be a good time to buy.
Answer: For qualified borrowers looking to take advantage of historically low interest rates, this can be an exceptionally affordable time to buy a home. According to the National Association of Realtors® Housing Affordability Index, homes were more affordable in January than at any time in more than four decades of recordkeeping.
But I emphasize the word "qualified." Freddie Mac has taken steps since the housing collapse of 2008 to promote responsible lending practices and create sustainable homeownership opportunities for families. Where necessary, we've modified our credit standards to help meet these goals by increasing minimum down payments, barring piggyback loans, and raising delivery fees to more accurately match loan risk, among other steps. Finally, it's important to note that some lenders are applying their own, more stringent, credit requirements in addition to ours.
Freddie Mac isn't trying to make it harder to buy a home for those who are financially prepared for homeownership. In fact, there are lots of opportunities out there for them. But we do have an obligation to help ensure that borrowers buy homes they can afford and keep. And clearly, the time to do that is at the beginning of the mortgage process – when loans are being written – not later, when foreclosure prevention strategies have entered the discussion.
Have a comment or question about this post? Email us to let us know what's on your mind.