May 27, 2018

Mortgage Giants to Reduce Loan Balances

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Mortgage Giants to Reduce Loan Balances

About 50,000 struggling home owners could be eligible to have their mortgage balances reduced under a new plan to be unveiled by Fannie Mae and Freddie Mac, The Wall Street Journal reports. The plan was approved by the Federal Housing Finance Agency and is expected to be formally announced “within the next few weeks.”

The plan is expected to target home owners who are delinquent on their mortgage payments and who owe more on their home than it is currently worth. Fannie and Freddie also will reportedly forgive the principal only in circumstances where they determine that they would lose less money by doing so than taking other foreclosure-prevention methods.

Officials told the WSJ that home owners who do participate in the program would likely still be underwater on their mortgages, but the amount by which they'll be underwater will be reduced. That could allow these struggling home owners to better keep up with their payments and work toward accruing equity, officials say.

The issue of principal reduction has been controversial in the industry. This would mark the first principal reduction program from Fannie Mae and Freddie Mac since the housing crisis, and some housing analysts have criticized the government-sponsored enterprises efforts to do so in the past.

Others argue the program will fall short, as it is reportedly scaled back to only serve roughly 50,000 home owners. A recent report from CoreLogic shows that about 4.3 million properties across the country still hold negative equity. Also, some critics argue the scope of the reduction will not be significant enough to help the home owners who participate.

Source: “Fannie, Freddie to Cut Mortgage Balances for Many,” MarketWatch (March 21, 2016) and “Fannie, Freddie to Cut Mortgage Balances for Thousands of Home Owners,” The Wall Street Journal (March 21, 2016)