Takeover unlikely to stem foreclosures

WASHINGTON - Mortgage rates fell yesterday as investors reacted to the government's takeover of Fannie Mae and Freddie Mac. And that's exactly what homeowners such as Jim Chereskin had been waiting for.

Chereskin, who lives in Naperville, Ill., took out an adjustable-rate loan in 2003 and has been worrying about how much his mortgage payments would rise once the loan resets to market rates in about 18 months.

"I don't want to have to worry about it anymore," said Chereskin, who expects to switch to a fixed-rate loan. That way, he said, "I can sleep at night."

The government's takeover of Fannie Mae and Freddie Mac - mortgage titans that own or guarantee about half of all U.S. mortgages - will help borrowers who had been nervously waiting for the best time to get out of the adjustable-rate mortgages they took out during the housing boom.

But it will do little to stem the dramatic rise in foreclosures. And so far, the government's other programs to assist distressed borrowers in refinancing have had minimal impact. That has consumer advocates calling on Fannie and Freddie to do more.

The interest rate for a 30-year fixed mortgage fell to as low as 57/8 percent yesterday. The average rate for a 30-year fixed mortgage dropped 0.3 of a percentage point to 6.04 yesterday, according to HSH Associates of Pompton Plains, N.J., and is expected to decline a little more in coming weeks.

Mortgage bankers and brokers also are hoping the government will eliminate or reduce fees that the Fannie and Freddie have been charging lenders to protect against increased losses from mortgages they own or guarantee. Lenders typically pass those fees along through higher mortgage rates or higher up-front costs.

Still, it is unclear whether Fannie and Freddie - under government control - will be able to do more to prevent foreclosures.

The companies already have increased payments to loan servicers - companies that collect mortgage payments on behalf of Fannie, Freddie and other lenders - to encourage them to help more borrowers work out their loan problems and avoid foreclosure.

Consumer groups were already urging the government to place more pressure on Fannie and Freddie to aid borrowers in trouble.

"Since we are using tens of billions of dollars to bail out entities engaged in these lending practices, it's time for the nation to demand those same entities fix [the problem] by restructuring loans and avoiding the further demise of the housing market," said Bruce Marks, chief executive of the Neighborhood Assistance Corporation of America, a Boston group that helps troubled borrowers.

On Wall Street, though, there are fears that lawmakers and advocacy groups will push Fannie and Freddie into more financial troubles by being too lenient on borrowers facing foreclosures.

More legislation to help borrowers avoid foreclosure appears unlikely until next year at the earliest.

Of the 356,000 borrowers projected to use the government's refinancing program through the year ending Sept. 30, about 5,000 consumers, or about 1.5 percent, are likely to have been delinquent. The Bush administration says that borrowers have been taking advantage of the program before they fall into delinquency and that the program was expanded over the summer to allow more delinquent borrowers to qualify.