New U.S. Program to Offer Mortgage Relief to Underwater Borrowers
April 14 2016 - 04:10PM
Dow Jones News
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.
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