Several major participants in the home mortgage market have agreed to adopt a set of principles for how they will be dealing with homeowners with high-priced loans who face possible foreclosure. Sen. Christopher Dodd, D-Conn., had urged such voluntary action by mortgage lenders and other players two weeks ago when he set up a meeting of their officials and federal regulators to discuss possible solutions to the crisis gripping the market for high-risk secured loans. Such industry initiatives are preferable, in Dodd’s view, to any government bailout to cover mortgage loans in default.
Those agreeing to the principles include the Mortgage Bankers Association; Wall Street powerhouses Citigroup Inc., JPMorgan Chase & Co. and HSBC Holdings Corp.; government-sponsored mortgage finance giants Fannie Mae and Freddie Mac; AARP; and the Leadership Conference on Civil Rights. Several activist and community groups receive money from financial institutions and work with homeowners to refinance high-rate loans.
Among the principles: contacting distressed borrowers promptly to try to work out arrangements; making loans more affordable by reducing rates, changing terms and other means; and providing refinancing at the lowest cost possible for those who are eligible. “These principles represent a critical step in preserving homeownership and economic opportunity,” Dodd said in a statement. “The companies and organizations that endorse these principles demonstrate their commitment to being part of finding solutions to foreclosures.”
Some companies that participated in the April 18 meeting, however, including Countrywide Financial Corp. and Wells Fargo & Co., did not endorse the principles. Home-mortgage delinquencies and foreclosures have been surging in recent months, especially for people who took out subprime mortgages, higher-priced loans for people with tarnished credit or low incomes who are considered greater risks.
The distress has roiled financial markets and stoked anxiety that it could spill over into the broader economy. Fannie Mae and Freddie Mac, the two biggest players in the $8 trillion home-mortgage market, recently committed to buy tens of billions of dollars of high-interest mortgages so that lenders can help strapped borrowers refinance and avoid foreclosure.
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