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Fannie, Freddie refuse to reduce 'underwater' loan amounts

August 2, 2012 @ 8:57 am

The Federal Housing Finance Agency announced that after several months of mounting pressure from the Obama administrator and lawmakers that the mortgage giants it regulates, Fannie Mae and Freddie Mac, will not lower the mortgage principal of underwater homeowners.

Its decision quickly drew criticism.

The FHFA insists that through its own analysis it has concluded that reducing the mortgage principal of struggling homeowners will not help prevent foreclosures nor save taxpayers money in bailout money to the GSEs.

The Obama administration says it disagrees with the FHFA's decision. Treasury Secretary Tim Geithner was quick to argue that a reduction of struggling borrowers' loan balances by the FHFA could save taxpayers up to $1 billion.

"I do not believe it is the best decision for the country," Geithner wrote to the FHFA shortly after it announced its decision. "You have the power to help more struggling homeowners and help heal the remaining damage from the housing crisis."

The government had committed to helping to cover some of the costs to implementing such a program if the FHFA would permit mortgage principal reductions to move forward.

Yet, Edward DeMarco, the FHFA's acting director, says that the FHFA has concluded after months of consideration that "the anticipated benefits do not outweigh the costs and risks" with mortgage principal reductions, and that the agency stands by its original decision to not permit it.

DeMarco said that only about 74,000 to 248,000 homeowners would be eligible for the principal reductions, but developing and implementing such a program would prove costly. Plus, about 11 million Americans are underwater on their mortgages so the program would only be able to help a small share.

DeMarco also said he was concerned reducing the mortgage principal on some homeowners' mortgages would prompt other borrowers to fall behind on their payments so that they could receive similar treatment.

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Comments (4)


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  • lukaszkb wrote...
    Underwater
    August 2, 2012 10:31 am
    I just want to say that if I were to be able to take off some of my underwater "value" the whole city would benefit. I am a single dude who like to go to restaurants and bars and shop. I would be spending alot more money at restaurants and whatnot. I would also be able to start saving for some much needed home improvements. There's some money in a contractor's pocket. Instead, I got swindled into a loan which I CAN afford, but that's it. My tax assesment of my property is $186k. My Zillow is $154k. This makes it pretty much impossible to re-finance and get a chunk of change to pay for upgrades. I also get to pay $150/month for "mortage insurance". I have never missed a payment and never will. I have great credit. I bank with BECU and have all kinds of loan offers every day. But.... since my property is not worth what the government tells me it is.... my property taxes are inflated and there is no possilbe way short of me pulling $50k out of my butt and putting it down on the loan. Which pretty much defeats the purpose of re-financing anyway. I'm not asking for much. Maybe $25k write down so I can re-finance and have spending money and spend it in my community. I almost wish I just got a $1m home so I can get taken care of by the govt. Unfortunately, I bought within my means and am responsible and make my payments on time. Meaning I don't need any help according to the govt.
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  • 509 wrote...
    Don't Worry be Happy.......the Banks are doing fine
    August 2, 2012 5:44 pm
    I got my letter from FHA saying the Obama Administration was going to help me. Call the bank that services my loan!!!......................the deal offered was 1% over market, 5,000 in new fees and my monthly payment would go down 15 DOLLARS A MONTH!!! I suspect the MEGA-BANKS gave the Obama Administration more money than us working people.
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  • C"mon Man wrote...
    November 2008
    August 4, 2012 11:49 pm
    On a Saturday Morning, the Fed chair,treasury sec's , as well as government financial people in the know, held an emergency meeting at the WH, with the hated war criminal "W",and his staff, President-elect Obama, Reid and Pelousi, and declared: due to toxic assets from a overinflated real estate market, thanks to Chris Dodd,Barney Frank and Countrywide, that unless the Fed wires 700 billion to to the Banks on the hook, were done. Franklin Raines was big man on campus over at fannie and freddie who walked away a rich man, and is still living large.
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  • SickofSeattleite wrote...
    a reduction in principle would benefit me!
    August 5, 2012 6:40 am
    If Fannie and Freddie reduce principle they can not claim the reduced amount on their taxes...So they benefit from that they also benefit from the Govt bailouts.... meanwhile homeowners get screwed. This is America. Isn't it ironic Fannie and Freddie started originally to help home owners.... hope they have fun with all their vacant houses...they will need those bailouts to pay all those delinquent property taxes....
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