Fannie Mae and Freddie Mac will offer mortgage relief to about 33,000 underwater borrowers through a plan announced on Thursday by their regulator, the Federal Housing Finance Agency.

Under the new program, borrowers would be eligible to have some of their mortgage principal forgiven if they have a loan whose balance is $250,000 or less and they are at least 90 days delinquent on their mortgage payments as of March 1.

Even after the principal reduction, the borrowers would still owe at least 15% more than their home is worth, the regulator said on Thursday.

Details of the plan were reported by The Wall Street Journal on Wednesday.

The FHFA also said it would require investors who buy delinquent loans from Fannie and Freddie to evaluate borrowers' eligibility for principal reduction if they owe more than 115% of the home's value. The regulator said it is forbidding buyers of delinquent loans from walking away from the properties, requiring them to first try to sell the property to a nonprofit, municipality or other buyer.

Advocates of principal reduction said the new provisions will help homeowners who continue to struggle to make mortgage payments years after the crisis. When those homeowners go into foreclosure, it creates a strain on low- and moderate-income communities, they said.

"These new programs recognize the value of principal reduction as an important tool that helps to keep families in their homes and reduces the cost of foreclosures," said Mike Calhoun, president of the Center for Responsible Lending.

But some members of Congress view the program as a government handout to irresponsible homeowners at taxpayers' expense.

"Principal reductions are not fair to taxpayers who have already spent billions keeping Fannie and Freddie afloat, and it's not fair to millions of families who—in the face of great challenges—scrimped, saved, and sacrificed to dutifully make their payments on time every month," said Rep. Scott Garrett (R., N.J.).

Structuring principal-reduction programs so that taxpayers don't lose money has long been a vexing task for the FHFA. Agency officials said Fannie and Freddie ultimately will save money by avoiding costs related to putting a property into foreclosure.

"This plan will no doubt be viewed by some as too small and too late," FHFA Director Melvin L. Watt said. But he said it would be viewed by others as "too large and unnecessary."

The program is a one-time offer that officials described as the final modification for homeowners to come out of the foreclosure crisis. FHFA officials said on Thursday this will help limit the moral hazard of leading borrowers to believe they can take a mortgage they can't afford and be bailed out.

The strict parameters of the program also mean it will reach a small number of homeowners.

In all, about 4.3 million borrowers owed more than their homes were worth at the end of 2015, according to real estate data firm CoreLogic, down from 12 million in 2009.

Write to Laura Kusisto at laura.kusisto@wsj.com and Joe Light at joe.light@wsj.com

 

(END) Dow Jones Newswires

April 14, 2016 15:55 ET (19:55 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
Fannie Mae (QB) (USOTC:FNMA)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Fannie Mae (QB) Charts.
Fannie Mae (QB) (USOTC:FNMA)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Fannie Mae (QB) Charts.