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Press Reports Indicate FHFA Will Allow Limited Principal Reduction for Underwater Fannie and Freddie Borrowers

Published on March 23, 2016 by Greg Zagorski
Press Reports Indicate FHFA Will Allow Limited Principal Reduction for Underwater Fannie and Freddie Borrowers

According to a recent Wall Street Journal article (subscription required), the Federal Housing Finance Agency (FHFA) has approved a plan that will allow Fannie Mae and Freddie Mac to reduce borrowers’ outstanding mortgage balances to help them remain in their homes. FHFA might officially announce the plan in the next few weeks. In a recent speech, however, FHFA Director Watt said only, “… I expect to announce a decision within the next 30 days about whether we have been able to find a “win-win” principal reduction strategy or whether, on the other hand, we will take principal reduction off the table entirely. So, while I don’t have an answer today, I invite you to stay tuned for more on this in the near future.”

The Journal reports that the scope of the plan will be limited. Only borrowers who are currently behind on their mortgage payments and who owe more on their mortgages than their home is currently worth would be eligible. In addition, Fannie Mae and Freddie Mac would only be able to forgive a portion of a borrower’s principal when they determine that it will lead to smaller losses than other foreclosure prevention methods. The article cites sources who estimate that fewer than 50,000 borrowers will be eligible for assistance through the plan.

If and when this plan is announced, it will be the first time FHFA has allowed Fannie Mae and Freddie Mac to reduce struggling homeowners’ loan principal. NCSHA will provide more information on this matter as soon as it is available.

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