Freddie And Fannie Not Buying Into Principal Reduction

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A fight to step up principal reduction to stem the flow of foreclosures and underwater mortgages is going on within the nation’s capital. The Obama Administration is intending to convince Freddie Mac and Fannie Mae to join a program that reduces the balance of underwater mortgage loans. Even though specialists say Fannie and Freddie’s participation is vital, the regulator of those agencies is barring them from participating. Resource for this article – Administration – Principal reduction keeps foreclosures in check by MoneyBlogNewz.

Reducing the head off the foreclosure snake

Principal reduction is the process of reducing what one owes on their mortgage. This is good for both the lender and the borrower. Foreclosures benefit nobody, and if you’re an underwater borrowers, this is meant to help you keep your home. Nearly 25 percent of United States home loans are underwater. Home values continuously dropping is causing the number of underwater home values to continue to grow. The Home Affordable Refinancing System added the principal reduction plan to it in wants of saving 1.5 million underwater home loans.

Freddie and Fannie have to be team players

Banks were being offered additional subsidies in return for principal reduction on underwater home loans as part of the HAMP system. Qualifying borrows have to owe more than 15 percent than what their home is worth and have to be up-do-date on their mortgage repayments. The Administration and bankers agree that without Freddie Mac and Fannie Mae going along, the program is unlikely to work. Freddie and Fannie combined own over fifty percent of home loans. Most banks aren’t participating in the principal reduction plan. If Fannie and Freddie step up and join, it is assumed that more large banks will join as well.

Freddie and Fannie don’t perform well with other people

Freddie Mac and Fannie Mae won’t join in unless the Federal Housing Finance Agency grants their approval, and they won’t. When the government had to take over the mortgage giants in 2008, FHFA was charged with curbing losses at Fannie and Freddie. Tax payers have already paid $134 billion to mortgage programs because of Freddie and Fannie, and that number is only going to grow. The Obama Administration is pressuring the FHFA to let Freddie and Fannie in. They say short term principal reduction will mitigate more severe long-term losses. But the FHFA says as long as underwater borrowers keep making their payments as is, Fannie and Freddie will keep taking their cash.

Citations

Pro Publica

propublica.org/article/fannie-and-freddies-govt-regulator-opposes-reducing-mortgages-for-strugglin

Wall Street Journal

online.wsj.com/article/SB10001424052748703963704576005990436624546.html

Mortgage11.com

mortgage11.com/2010/12/hamp-loan-modification-help-to-know-more-on-principal-reduction-for-underwater-homeowners/

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