ARE MORTGAGE WRITE-DOWNS ON THE WAY FOR UNDERWATER LOANS?
The Federal Housing Finance Agency is reportedly analyzing the feasibility and cost of principal mortgage reductions for some borrowers under a revamped Home Affordable Modification Program. If the FHFA starts granting mortgage write-downs, it would be viewed as a major reverse of course from an agency that has in the past opposed principal write-downs.
About 11 million borrowers are underwater nationwide — owing more on their mortgage than it is currently worth — and 4 million of those borrowers have Fannie Mae and Freddie Mac-backed mortgages, which the FHFA regulates.
“We think there is a set of cases where it is clearly in the interest of the taxpayer to do principal reduction,” Treasury Secretary Timothy Geithner told a House subcommittee this week. “It is not an overwhelming number, but where it makes sense we should do it.”
Darius Kingsley, chief of home ownership preservation office at the Treasury Department, told HousingWire that borrowers with an above 120 percent loan-to-value ratio, who also can prove a hardship, tend to be the best candidates for write-downs.
“People who are opposed to principal reduction to begin with often confuse HAMP with a mass principal write-down program,” Kingsley told HousingWire. “Other people think that because of the number of badly originated loans that so many were steered into, we should right a wrong and give everyone principal reduction. The fact is that principal reduction isn’t right for everyone, but it is a steadily increasing percentage of our modifications, and servicers are finding it can work for some.”
Earlier this year, the FHFA estimated that forgiving mortgage debt on Fannie Mae and Freddie Mac loans could cost the companies nearly $100 billion. The companies are taxpayer-funded.
The FHFA’s latest analysis of the cost — or any potential savings — for Fannie Mae and Freddie Mac from agreeing to mortgage principal write-downs in some cases is expected to be released in the coming weeks.
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