Could underwater FHFA borrowers catch a break?

by MPA06 Feb 2015
The Federal Housing Finance Agency (FHFA) is considering reducing the balances of homeowners with underwater mortgages, according to its director Mel Watt. However, attempting to find places where Fannie Mae and Freddie Mac can reduce mortgage balances without hurting taxpayers could prove to be challenging.
"I think it will be substantially narrower than the vision people have," Watt told Bloomberg. "Reducing everybody’s principal would cost taxpayers billions."
However, he said to the Wall Street Journal that some people, “when they say ‘principal reduction,’ they’re talking about everybody with a mortgage or underwater getting a reduction in principal. That would be extremely costly to do.”
He added that any principal reduction program would be focused on loans that didn’t hurt Fannie or Freddie.
Approximately 5.1 million properties, or 10.3%, of all homes with a mortgage were in negative equity as of the third quarter of 2014, according to CoreLogic. However, with home values rising, the number of underwater borrowers has been declining each year. About 273,000 homes returned to positive equity in the third quarter of 2014, bringing the total number of mortgaged residential properties with positive equity to approximately 44.6 million, or 90% of all mortgaged properties, according to the firm.
FHFA took a preliminary step toward allowing debt cuts in November by letting borrowers who have gone through foreclosure repurchase their homes at market prices. In December, the agency announced that GSEs would begin accepting mortgages with as little as 3% down.
However, the lower down payment may not be as enticing as the recent FHA mortgage insurance premium cut because of the higher private mortgage insurance premiums charged on the loans.
The National Association of Hispanic Real Estate Professionals (NAHREP) recently said they are urging Fannie and Freddie to follow the FHA’s move. "NAHREP feels that lowering borrower costs by reducing the current excessive guarantee fees and loan level pricing adjustments at Fannie Mae and Freddie Mac are equally important in supporting the Obama administration’s stated goal of ‘preserving broad and affordable access for all creditworthy families.'”


  • by Cheryl M | 2/6/2015 9:54:41 AM

    Not a challenge after all, recent settlements with class action lawsuits and 48 state Attorney General offices already did that for you Mr. Watt. Fannie and Freddie mortgages came from those already in this process the "mortgagee's" and servicers for those underwater mortgages. Some are one in the same...such as Wells who originally was the mortgagee, but sold their mortgage to Fannie and Freddie remaining the servicer. (a common practice in the industry) Now go back to Wells as the "mortgagee" review their mortgage origination and original note, most are from 2006, etc. Many of these mortgages have over inflated values of which the mortgagee placed on these "underwater" mortgages. Same goes for Chase, all these mortgagee's and servicers rightfully owe Fannie and Freddie the difference not the taxpayers. Start with those mortgages sold to Fannie and Freddie that have these similarities. You'll find them, and you won't be surprised what you find over... inflated values.

  • by Susan P | 2/9/2015 3:31:36 PM

    The borrower in every instance agreed to the terms of the mortgage including the appraised value upon which the money was lent. Mortgagees and servicers do not owe Fannie a Freddie a dime on underwater mortgages. Principal should not be reduced. Borrowers should pay the mortgage as agreed, and if they are disturbed by valuation then they have the option to walk away and suffer the consequences of foreclosure.

  • by onemorevoice | 3/7/2015 11:05:15 PM

    Yes, borrowers agreed to the appraised value of the homes and in most instances were told the mortgage market was stable. Homes in 2006 were grossly overvalued and I dare say that most people would not have purchased at those inflated values had they known the market would crash in 2007. Coupled with job loss, devalued personal investments (IRA, 401's etc.) many homeowners found themselves in mortgage hell. The unscrupulous behaviors of banks and/or mortgage companies are now being challenged in court as many investors are seeking recourse from being sold securitized mortgages packages that were knowingly overinflated. The settlements many states AG's secured is a testament to the chaos caused by illegal activity at a cost to both taxpayer and homeowner. So I ask why investors and government entities can recoup losses from illegal activity but homeowners should have no recourse?


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