Fannie, Freddie set to cut mortgage debt for underwater borrowers – report

After years of resisting the idea, the FHFA is reportedly set to reduce principal on a limited number of underwater mortgages

The Federal Housing Finance Agency has approved a plan to cut mortgage balances for thousands of homeowners, according to a Wall Street Journal report.

According to the Journal, the principal reduction plan – which would likely affect fewer than 50,000 underwater homeowners – would reduce principal “only in cases where they determine the companies would lose less money with that option than foreclosure or other foreclosure-prevention methods.”

The program will also most likely be limited to mortgages “whose outstanding principal balance is under a certain dollar amount,” the journal reported.

The plan will likely be officially announced within the next few weeks, the Journal reported.

For years, the FHFA insisted that it wouldn’t engage in principal reductions, according to a HousingWire report. In 2012, then-Treasury Secretary Tim Geithner championed the plan, but was shot down by Ed DeMarco, then the acting FHFA director.

When Mel Watt took over at the agency in 2014, many thought he would make principal reduction an early priority, HousingWire reported. However, Watt spent the next couple of years considering it, even telling Bloomberg last year that, if the agency did decide to cut mortgage balances, the program would be “substantially narrower” than many observers predicted.

“Reducing everybody’s principal would cost taxpayers billions,” Watt said at the time.

While the Journal reports that around 50,000 borrowers would be eligible for principal reductions under the plan, the latest data shows that there are still 4.3 million properties underwater, HousingWire reported.