The Underwhelming Frannie Loan-Mod Plan

The Frannie loan-mod plan has arrived, and it's not particularly exciting. Among the more obvious problems:

• It applies only to mortgages owned by Frannie, which means, by definition, that it doesn't include subprime mortgages. FHFA is trying to apply moral suasion -- but no cash -- to persuade other mortgage holders to adopt the same plan. Good luck with that.
• It doesn't even begin to address the problem of mortgages which have been securitized, rather than being held by a single bank.
• It's based on the idea that servicers "have dedicated personnel who are experienced in working with borrowers
  who are struggling with finances, but who are eager to keep their homes". Not nearly enough of them they don't.
• It requires borrowers to be 90 days delinquent -- and therefore gives many borrowers with mortgages over 38% of their gross monthly income a massive incentive to cease making any mortgage payments now.
• The onus is on the borrower to initiate proceedings, providing a package including "monthly gross household income, association dues and fees, and a hardship statement". For $800 per mod, servicers aren't going to be proactive about helping get this kind of thing done, especially given how overworked they are already.

In a quite extraordinary turn of events, FHFA director James Lockhart said in his statement that "we have drawn on the FDIC's experience and assistance, and have greatly benefited from the FDIC's input", yet the FDIC's Sheila Bair then turned around and released her own statement, saying that the plan "falls short of what is needed to achieve widescale modifications of distressed mortgages".

Clearly this is not going to be the last word when it comes to government attempts to help stabilize the housing market. It's probably going to be the last word until January 20, though; after that, Bair might find Treasury and the White House more amenable to her ideas.