Edward DeMarco, the head of the Federal Housing Finance Agency, has been steadfastly against offering principal reductions to homeowners with Fannie Mae and Freddie Mac mortgages, but he seems to be wavering. Under Congressional pressure, he has stated that the idea of principal reduction might make sense, although more study is needed. He has been against the idea primarily because homeowners not in trouble could demand equal treatment.
Since the collapse of the housing market that began in 2007, the value of American homes has fallen by some $7 trillion. Approximately 11 million homeowners now owe their lender more on their mortgage than their homes are worth. Many of these homeowners would be buying another home if they could sell the one they have, but it’s not in the cards when they owe more than the mortgage balance. This is one factor contributing to the continued lack of buying pressure.
There are analysts who are warning that the trend of walking away from underwater mortgages could be growing, as the years pass by and homeowners see little or no relief. There are suggestions that avoiding these defaults by lowering principal balances could begin to heal the ailing housing market as sellers become buyers.
There are currently around 29 million mortgages overseen by Fannie Mae and Freddie Mac. DeMarco has been reviewing the current tools being employed to improve the situation, including:
• cutting interest rates.
• extending the term of the loan.
• offering principal “forbearance,” postponing repayment of a portion of the loan balance.
None of these tools includes permanently reducing the principal balance. The debate over Freddie and Fannie principal reduction has been raging for a while now. Even the FHFA, Federal Housing Finance Agency, inspector general reported recently that Freddie Mac alone could save the taxpayers “significant” sums of money if it pressed mortgage servicers to modify more loans.
Edward DeMarco, the head of the Federal Housing Finance Agency, has been steadfastly against offering principal reductions to homeowners with Fannie Mae and Freddie Mac mortgages, but he seems to be wavering. Under Congressional pressure, he has stated that the idea of principal reduction might make sense, although more study is needed. He has been against the idea primarily because homeowners not in trouble could demand equal treatment.
Since the collapse of the housing market that began in 2007, the value of American homes has fallen by some $7 trillion. Approximately 11 million homeowners now owe their lender more on their mortgage than their homes are worth. Many of these homeowners would be buying another home if they could sell the one they have, but it’s not in the cards when they owe more than the mortgage balance. This is one factor contributing to the continued lack of buying pressure.
There are analysts who are warning that the trend of walking away from underwater mortgages could be growing, as the years pass by and homeowners see little or no relief. There are suggestions that avoiding these defaults by lowering principal balances could begin to heal the ailing housing market as sellers become buyers.
There are currently around 29 million mortgages overseen by Fannie Mae and Freddie Mac. DeMarco has been reviewing the current tools being employed to improve the situation, including:
• cutting interest rates.
• extending the term of the loan.
• offering principal “forbearance,” postponing repayment of a portion of the loan balance.
None of these tools includes permanently reducing the principal balance. The debate over Freddie and Fannie principal reduction has been raging for a while now. Even the FHFA, Federal Housing Finance Agency, inspector general reported recently that Freddie Mac alone could save the taxpayers “significant” sums of money if it pressed mortgage servicers to modify more loans.