Some Northeast cities have revamped mortgages without government’s consent

Insolvency-hit homeowners throughout the Northeast have seen little help from their government, leaving some people struggling to make mortgage payments — and others doubling or tripling the size of their existing mortgages.

At the same time, private lenders have stepped in, to the fury of lenders who say regulators have not done enough to protect them against the kinds of loans that resulted in the foreclosure crisis.

On the Northeast’s most-heavily distressed neighborhoods, mortgage paperwork and accounts are stacking up in municipal offices as home owners try to keep up with their mortgages, especially in New York and Connecticut. In an attempt to ensure homeowners can pay their mortgage, some cities have taken unilateral steps to rewrite the loans — a function normally done by private lenders, not the government.

Backed by the federal government, Freddie Mac and Fannie Mae, both of which were seized by the government in September 2008, have been trying to provide mortgages to “prime” borrowers, or those with good credit, with significant restrictions on the length of the loans, the interest rates and other aspects of the debt.

But other private lenders — not Fannie and Freddie — have been taking on larger chunks of the loans that Freddie and Fannie have pulled back from. These non-federal lenders are “relatively new” to servicing government-backed mortgages, said Natalie Stroud, a spokeswoman for the Federal Housing Finance Agency, which oversees Fannie and Freddie. “Private players are stepping up, and we are seeing results,” she said.

Tracy Scott, whose company, Sandy’s Law LLC, has a contract with the city of Long Beach to assess the value of foreclosed homes, said there were five houses that the city had already repossessed that were turned over to one private lender. “You know who owns those loans? Not the government,” she said.

A report in The Wall Street Journal on Thursday said more than a dozen cities in the Northeast had reworked the mortgages of delinquent borrowers without the consent of Fannie and Freddie. The cities complained that they were being turned down when they tried to modify loans with private lenders, who in some cases have not set up loan-modification programs.

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