The FHFA’s Foreclosure Prevention Report for November came out today and paints a rosy picture of GSE loan modification and other “foreclosure prevention” efforts given to those in default on a GSE insured mortgage. Could it be that GSE insured loans and the borrowers on them, get better, more favorable treatment by the servicers than say…a subprime borrower on a non-insured mortgage?

Foreclosure Prevention GSE Style

We all know by now the federal government in the form of the FHFA, Federal Housing Finance Agency, took over the two GSE’s of Fannie Mae and Freddie Mac back in early September of 2008. This effectively “nationalized” the mortgage securitization and underwriting” of prime credit mortgage in the US. and puts the government on the hook for how the borrowers of these loan get treated should they fall into foreclosure.

Prime loans go into foreclosure?

Yep…they sure do, but NOT at the pace of the subprime mortgage market.

How do you think prime mortgage foreclosure victims get treated should they fall behind?

Better or worse than their subprime counterparts?

Well if we are to believe the FHFA report, the answer is “Better”…a lot better.

Foreclosure prevention efforts are increasing with Fannie and Freddie defaulting borrowers, something no one would ever claim is happening with the subprime mortgage servicers.

According to the report,

“Modifications completed increased from a monthly average of 2,883 for 2007, 5,218 for the first quarter, 5,129 for the second quarter and 4,497 for the third quarter to 5,600 for October and 8,291 for November. Compared with the monthly average of 4,948 for the first nine months of 2008, October modifications increased by 13.2 percent and November by 67.6 percent.”

James B. Lockhart, Director of the Federal Housing Finance Agency, said,

“Loan modifications for October and November, which were the first two full months of the conservatorship, increased by 50 percent from the previous two months,” said Lockhart. “These data reflect the increased commitment of the servicers and the GSEs to help borrowers in trouble modify their loans to keep them in their homes.”

Foreclosure Prevention Carries Strange Definition

It seems Mr. Lockhart and the FHFA may have a different definition than I when it come to understanding loss mitigation.

I talked previously about how most in government or business like to use the term “preventable foreclosures“, so they can “define away” most the real people in foreclosure…some how pinning all the blame for their plight on the back of the borrower. This ignores completely the significant chunk of borrowers who were lied to, outright defrauded, or simply coerced into taking mortgages destined to crush them.

His definition of foreclosure prevention activities include “…payment plans, delinquency advances, loan modifications, short sales, deeds in lieu, assumptions, and charge-offs…” or the whole kitchen sink!

True foreclosure prevention in my book is a permanent change of mortgage terms which based on current income and debt levels, the borrower can afford and keep his house over the long term.

…A bona fide loan modification…nothing less!

It looks to me like the banks, the mortgage servicers, and the government that now owns most of the bad debts, no longer wants to “help” foreclosure victims. They want to maintain profitability, but use the spin machine to appear benevolent.

Sorry, FHFA…we are not that gullible.

Good Luck!

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