Mortgage firms develop new loans for distressed borrowers (AP/USA Today)

Updated 1h 23m ago

WASHINGTON (AP) — The heads of Fannie Mae and Freddie Mac said Tuesday the mortgage finance giants are developing new types of loans to help distressed borrowers with high-risk mortgages keep their homes at a time of rising foreclosures.

A key federal regulator also urged lenders to step in now and extend flexible terms to struggling homeowners.

The moves by the two government-sponsored companies, the biggest buyers and guarantors of home mortgages in the country, came in response to the turmoil in the market for so-called subprime mortgages, higher-priced loans for people with tarnished credit or low incomes who are considered greater risks. In recent weeks, the distress has roiled financial markets and stoked anxiety that it could spill over into the broader economy.

The companies' initiatives were disclosed by their chief executives at a hearing by the House Financial Services Committee. Sheila Bair, chairman of the Federal Deposit Insurance Corp., exhorted mortgage lenders to show flexibility toward borrowers to help staunch a flood of defaults among homeowners with subprime loans.

Many of those borrowers "could avoid foreclosure if they were offered (loans) that allow for affordable mortgage payments," Bair testified. Restructuring their expensive adjustable-rate mortgages "into more affordable products, especially 30-year fixed-rate mortgages, would bring them back to good standing, allow them to repair their credit histories and dampen the impact that foreclosures may have on the broader housing market."

MORE

http://www.usatoday.com/money/economy/housing/2007-04-17-mortgage-loans_N.htm