Administration - Principal reduction will keep foreclosures in check

Government policymakers are arguing about the efficacy of principal reduction as a solution to a growing number of underwater mortgages. The program is strongly supported by the Obama Administration. Officials try to convince Freddie Mac and Fannie Mae that their participation is crucial to its success. Even though experts say Fannie and Freddie’s participation is vital, the regulator of those agencies is barring them from participating. Resource for this article – Administration – Principal reduction keeps foreclosures in check by MoneyBlogNewz.

Reducing the head off the foreclosure snake

It is good for both loan companies and borrows to reduce the amount owed on a mortgage, called principal reduction. Foreclosures benefit nobody, and in case you are an underwater borrowers, this is meant to help you keep your home. Currently a quarter of all home loans are underwater. As United States home values continue to fall, that number is expected to increase. There are around 1.5 million underwater home loans, and the government hopes to help them out by adding the principal reduction plan to the Home Affordable Refinancing Program.

Must include both Mae and Mac

To jump start a sputtering HAMP plan, in October the Administration began offering banks additional subsidies in return for principal reduction on underwater home loans. To qualify, borrowers have to be current on mortgage repayments and owe at least 15 percent more on their home loans than their homes are worth. The success of this system is weighed heavily on if Fannie and Freddie join in and participate or not. Fannie and Freddie combined own over fifty percent of home loans. So far banks have been reluctant to support principal reduction. If Fannie and Freddie step up and join, it is assumed that more large banks will join also.

The reason why Fannie and Freddie won’t perform

Fannie Mae and Freddie Mac won't join in unless the Federal Housing Finance Agency grants their approval, and they won't. FHFA was accused of throwing losses Fannie and Freddie's way when the government took over mortgages back in 2008. $134 billion and increasing is the amount of money thus far the mortgage industry has costs tax payers. The Obama Administration is pressuring the FHFA to let Fannie and Freddie in. Long term losses will be lowered with short term principal reduction. Fannie and Freddie will continue to take underwater borrowers cash so long as they are willing to pay.

Articles cited

Pro Publica

propublica.org/article/fannie-and-freddies-govt-regulator-opposes-reducing-mortgages-for-strugglin

Wall Street Journal

online.wsj.com/article/SB10001424052748703963704576005990436624546.html

Mortgage11.com

mortgage11.com/2010/12/hamp-loan-modification-help-to-know-more-on-principal-reduction-for-underwater-homeowners/