Fannie Mae & Freddie Mac Considering Principal Reduction Policy
Written by Emil Fleysher | April 20, 2012 | Debt
Fannie Mae and Freddie Mac could save $1.7 billion if they forgave principal on some troubled mortgages. The Federal Housing Finance Agency may make a decision in the next few weeks about whether to change its policy barring the two taxpayer-owned companies from performing such loan modifications. The FHFA has come under pressure from the Obama administration and consumer advocates to cut principal for underwater borrowers. The companies are barred from reducing principal on the seriously delinquent loans they own or guarantee on the grounds that it would hurt their bottom line.
The FHFA will announce additional measures to help troubled homeowners in the next few weeks. Other measures may include a program that would allow delinquent Fannie Mae and Freddie Mac borrowers to continue to live in their houses as renters after turning over the deeds.
The FHFA said it would cost Fannie Mae and Freddie Mac an additional $100 billion to write down all 3 million underwater loans to the value of the homes securing them. However, far fewer loans would actually be candidates for principal forgiveness, even if FHFA changes it policy. It is estimated that at best the tactic would help an additional 200,000 to 300,000 families keep their homes. From the perspective of the FHFA, the main goal is to protect taxpayers. They want to be sure the principal reduction strategy is appropriate and they believe it is for some types of loans.
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