Government

The Federal Reserve's Tuesday policy meeting signaled a clear shift from earlier in the year, when officials professed stability and the central bank was crafting its exit strategy for stimulus programs. With economic growth in the United States slowing and the threat of a double-dip recession spreading, the Federal Reserve board has decided to take the proceeds from its investments in mortgage bonds and pump new capital into the system. The move is an indication of the Fed's heightened concerns over the current state of the economy.

A former Fannie Mae VP has gone public with accusations that the nation's largest mortgage company mishandled its stewardship of the Home Affordable Modification Program (HAMP). The whistleblower claims that HAMP was impeded by intentional delays and slip-ups because Fannie executives placed their institution's short-term financial interests above helping homeowners avoid foreclosure. A spokesperson for Fannie Mae told DSNews.com that there is ""no merit to [the] allegations.""

Freddie Mac reported Monday that it lost $4.7 billion during the second quarter. The GSE is asking the Treasury for another $1.8 billion of taxpayer dollars. Freddie has drawn $64 billion from its line of credit with the Treasury since the government took control of the mortgage giant in September 2008. Despite a continuous string of losses - this was the 11th in the last 12 quarters - Freddie Mac's latest earnings report actually marks an improvement. For the previous three-month period, the GSE posted a $6.7 billion loss.

After four weekends characterized by bank failures in mass, regulators shut down only one financial institution Friday - Ravenswood Bank in Chicago. This latest closing brings the 2010 failed-bank tally to 109. The pace of closings this year is well ahead of the number of shut-downs seen this time last year - 72. The FDIC has said it doesn't expect bank closings to peak until the latter part of 2010.

Leaders of the House Financial Services Committee say they are looking for ways to recoup the billions of dollars the federal government has sunk into the GSEs over the past two years. Taxpayer support to shore up Fannie Mae and Freddie Mac stands at $145 billion so far, and the tab keeps rising. Rep. Paul Kanjorski says, ""Twenty years ago, we found a way for industry to pay back the sizable U.S. Treasury payments for resolving the savings-and-loan crisis. We can do it again.""

Fannie Mae says it is retiring one of its foreclosure prevention options. The GSE's HomeSaver Advance (HSA) program will be taken off the table on September 30. Fannie explained that HSA volume has shrunk significantly as other foreclosure prevention workouts, particularly modifications, have increased. Under the program, servicers were allowed to extend unsecured personal loans to delinquent homeowners to cure arrearages, but as housing and economic woes have worsened, such a short-term fix has not been enough to keep borrowers current.

Nearly a quarter of U.S. homeowners with a mortgage owe more on the loan than their home is worth, and home prices are threatening to fall further. The Federal Housing Administration (FHA), though, is throwing out a lifeline. Starting September 7, the federal agency will offer new FHA-insured mortgages to certain underwater, non-FHA borrowers who are current on their mortgage payments and whose lenders agree to write off at least 10 percent of the unpaid principal balance.

The U.S. Federal Reserve is in the same boat as the banks now, dealing with a mortgage portfolio that's riddled with deficiencies and delinquencies. The central bank's New York branch has been saddled with a heap of souring loans from the assets it picked up to support the 2008 bailout of Bear Stearns. And now, as more and more of these loans - both residential and commercial - fall into default, the New York Fed is faced with a dilemma: to foreclose or not to foreclose.

Fannie Mae's second-quarter losses narrowed considerably from the demoralizing financials of the past several years that found the nation's largest mortgage financier underwater itself in a sea of red ink. The GSE reported Thursday that it lost $1.2 billion last quarter. It was Fannie's smallest loss in more than three years. The company also said it needs far less money from taxpayers this quarter - $1.5 billion. The company acquired 68,838 single-family REOs through foreclosure in Q2, and its seriously delinquent rate dropped to 4.99 percent.

The nation's two largest mortgage companies have published forecasts lowering their projections for home sales and mortgage production, industry-wide. The economists at Fannie Mae are tempering public expectations for the housing market with a candid warning: the headwinds in housing have picked up. Freddie Mac's economic team slimmed down its projected numbers, but said the market has gained enough momentum to carry through the occasional setbacks.