FHFA to Reduce Mortgage Balances for Some Delinquent Homeowners

  • About 33,000 U.S. homeowners expected to be eligible
  • Borrowers must be at least 90 days behind on payments

The federal regulator for Fannie Mae and Freddie Mac approved a plan to reduce mortgage balances for some American homeowners who have been struggling to make payments in the aftermath of the real estate crash.

The program is a one-time offer for people whose loans are owned or guaranteed by Fannie Mae or Freddie Mac, the Federal Housing Finance Agency said in a statement Thursday. To qualify, borrowers must meet specific criteria that include being at least 90 days delinquent as of March 1 of this year and having an unpaid principal balance of $250,000 or less. The FHFA expects about 33,000 homeowners to be eligible.

The FHFA, which has overseen U.S. conservatorship of Fannie Mae and Freddie Mac since 2008, has long considered principal reduction for borrowers who are delinquent or owe more than the current value of their homes. Director Melvin L. Watt has said he’s been conducting studies to come up with a narrow program that wouldn’t hurt finances of the two mortgage giants. The implementation now comes four years after home prices bottomed and as many owners have regained equity in the properties.

“The national housing market has significantly improved in recent years but there are still areas of the country where home values have not recovered and negative equity remains a real problem,” Watt, a former Democratic congressman who took over at the agency in January 2014, said in the statement. “This plan will no doubt be viewed by some as too small and too late and viewed by others as too large and unnecessary.”

Reducing home-loan balances could affect mortgage real estate investment trusts, private mortgage insurers and servicers, Isaac Boltansky, an analyst in Washington with Compass Point Research & Trading, said in a report Thursday. Still, the relatively small scale and scope of the plan “will limit its ultimate impact on the broader market,” he said.

Nationally, house prices are up about 31 percent since the 2012 low. One million borrowers regained equity in their homes last year alone, according to a March report from CoreLogic Inc.

Mortgage servicers must solicit borrowers eligible for a principal reduction no later than Oct. 15, the FHFA said.

The agency also said Thursday that it approved further changes to its requirements for Freddie Mac’s and Fannie Mae’s sales of soured home loans to help minimize foreclosures. The FHFA said it has established more specific modification standards for buyers and are prohibiting those who purchase the loans from unilaterally releasing liens and walking away from vacant properties.

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