Government’s Freddie, Fannie takeover could benefit Black borrowers

Now that the government has taken over mortgage giants Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation), struggling Black homeowners could soon have their loans restructured.

“The government will have little choice but to reset loans in foreclosure,” said Margaret Thompson, a senior mortgage banker with Citibank. “Because if all the loans financed by Freddie Mac and Fannie Mae fall into foreclosure, the economy would never recover from it.”

Homeowners, like Bernard Brown, 40, are hoping their subprime loans are reset. Brown has fallen eight months behind in his mortgage and said he is preparing to move.

“I’ll never get caught up, so rather than waste time and making partial payments, I have been saving my money to move back to the apartment sector,” he said. “When I first moved into my home six years ago, my mortgage was $1,200 a month. But now it’s ballooned to $1,900 a month, and that’s too much.”

Brown lives in a three-bedroom, two-bathroom frame house on the far South Side with his wife and 13- year-old son.

In Cook County, 33,003 foreclosure cases have been filed so far this year, slightly less than the record 38,467 filed in 2007.

Still, some homeowners said it’s only fair the government step in and clean up its own mess.

“The government is the one who sponsored these lenders from the very beginning,” said Lisa Nelson, 52, a West Side homeowner facing foreclosure. “All these years Freddie Mac and Fannie Mae have guaranteed bad loans issued by other lenders, like Countrywide, and now they are stuck holding the bag. Serves them right.”

The takeover of Fannie Mae and Freddie Mac is seen by Wall Street as a way to calm credit markets, possibly lowering the cost of mortgages and helping the housing market recover from a recession.

“The more successful the effort is, the less it will cost taxpayers,” Thompson added. “What’s clear is that every U.S. taxpayer is now tied to the failing housing market. And the stakes are much higher than the $30 billion federal intervention to stave off bankruptcy at Bear Stearns earlier this year.”

Fannie Mae and Freddie Mac are known as government-sponsored enterprises because they were chartered by Congress to create a more stable mortgage market. And they have been fulfilling that mission over the past year.

“Amid a sharp decline in real estate sales and prices, investors have been willing to fund the risky loans that carry a Fannie or Freddie imprint,” said Lynn Francis, a real estate analyst with Morgan Stanley, a financial services firm. “That has helped keep mortgages relatively available and affordable.”

But Gordan White, a real estate analyst with Lehman Brothers, an investment bank that recently filed for Chapter 11 bankruptcy, said the more home prices fall, the higher foreclosure rates would become and the more losses would pile up at Fannie and Freddie.

“Homeowners are hurting so much these days. I cannot believe the government doesn’t feel our pain,” said June Carter, 49, a West Side homeowner. “Energy costs have risen, property taxes are up, and when you have a sub prime loan, that’s up even higher.”

Other homeowners like Myles Smith, 34, said the government does not care about the little people, just the big cats on Wall Street.

“Isn’t it strange how the government can come up with billions to help out these companies but won’t invest that same amount in helping borrowers with subprime home, student and auto loans? Good thing there’s an election coming up. Maybe things will change for Black borrowers then.”

Combined, Freddie Mac and Fannie Mae held $5 trillion in mortgages, nearly half of all U.S. mortgages, U.S. Treasury Secretary Henry Paulson said. The pair also posted a combined second-quarter loss of $3 billion, according to the Securities and Exchange Commission.

But the focus now should be on homeowners–particularly Black homeowners–and how the takeover will benefit them, said Lacey Robinson, 34, a community activist.

“Predatory lending is geared toward minority borrowers like Black folks, and the government knows that,” she said. “So it’s only right that they come up with some kind of bailout for Blacks since they seem to have billions to bail out corporate America.”

Wendell Hutson can be reached via e-mail at whutson@chicagodefender.com.