Critics Say New Federal Mortgage Plan Not Enough

Troy Courtney stands on the porch of his Mill Valley, Calif., home on Saturday, Nov. 1, 2008. His...

Troy Courtney stands on the porch of his Mill Valley, Calif., home on Saturday, Nov. 1, 2008. His family is about to move out of the house following a foreclosure. The government and the mortgage industry are launching the most sweeping effort yet to help troubled homeowners by speeding up the process for renegotiating hundreds of thousands of delinquent loans held by Fannie Mae and Freddie Mac.

(Noah Berger/AP Photo)
More Photos

Once again, the government has offered another plan to help troubled homeowners. Once again, critics say it doesn't go far enough. The plan announced Tuesday by federal officials and mortgage giants Fannie Mae and Freddie Mac sounds sweeping in its approach: Borrowers would get reduced interest rates or longer loan terms to make their payments more affordable.

But there's a catch. The plan focuses on loans Fannie and Freddie own or guarantee. They are the dominant players in the U.S. mortgage market but represent only 20 percent of delinquent loans.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., said the plan "falls short of what is needed to achieve wide-scale modifications of distressed mortgages."

With the government spending billions to aid distressed banks, "we must also devote some of that money to fixing the front-end problem: too many unaffordable home loans," Bair said in a statement.

Related

CitiMortgage to Help Out Home Owners

WATCH: Citi's New Mortgage Plan

Stuck in a Mortgage Mess? 'Modify' It!

Democrats on Capitol Hill aren't satisfied, either. "When the loan is chopped up into a million pieces and any investor can block a modification from happening, a program like this will only scratch the surface of the mortgage crisis," said Sen. Charles Schumer, D-N.Y.

The economic crisis is still unnerving Wall Street. Stocks fell again as investors found few industries safe from the consumer spending slump. With Starbucks Corp. and luxury homebuilder Toll Brothers Inc. both posting disappointing quarterly results, the Dow Jones industrial average closed down nearly 180 points.

The financial crisis took on a new dimension on Capitol Hill. House Speaker Nancy Pelosi called for "emergency and limited financial assistance" for the battered auto industry and urged the outgoing Bush administration to join lawmakers in reaching a quick compromise during a postelection session of Congress.

The new mortgage assistance plan was announced by the Federal Housing Finance Agency, which seized control of Fannie and Freddie in September, and other government and industry officials.