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FHFA: No Principal Forgiveness From Fannie or Freddie

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The federal government has been considering whether it should allow troubled homeowners to get part of their outstanding mortgage balance forgiven, but the federal agency that oversees two large participants said that such a move will not happen.

The Federal Housing Finance Agency recently announced that it would not allow the government-sponsored enterprises Fannie Mae and Freddie Mac to begin writing off delinquent mortgage debts, according to a report from Bloomberg News. This decision comes despite the U.S. Department of the Treasury offering incentives for doing so.

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Free Credit Check & MonitoringEssentially, the issue lies with the FHFA’s belief that there would be no appreciable benefit to taxpayers, the report said. The agency has long had a policy that prohibited principal write downs on delinquent mortgages, and it did not bow to pressure from lawmakers or top officials to alter that rule. The Treasury Department has been working since January to get the issue resolved and offered Fannie and Freddie upwards of 63 cents — taken from the Troubled Asset Relief Program — for every dollar of write downs.

“After extensive analysis of the revised [Home Affordable Modification Program Principal Reduction Alternative], including the determination by the Treasury Department to begin using Troubled Asset Relief Program monies to make incentive payments to Fannie Mae and Freddie Mac, FHFA has concluded that the anticipated benefits do not outweigh the costs and risks,” said Edward DeMarco, acting director of the FHFA.

Treasury Secretary Timothy Geithner wrote in a letter to DeMarco that the decision was not in the nation’s best interest, as the plan would have helped many troubled consumers keep their homes, the report said. Other lawmakers were also peeved with the decision, as some analysts said the move could save taxpayers as much as $1 billion while also helping roughly 500,000 homeowners.

Since the end of 2008, Fannie and Freddie have completed 1.1 million loan modifications that did not involve write downs, and another 1 million transactions have similarly helped troubled borrowers avoid foreclosure, the report said.

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Mortgage delinquency remains a significant problem these days, and is still pervasive in some parts of the country. Many homeowners are now seeking ways to make their mortgages more affordable, including refinancing while interest rates hover below 4 percent.

Image: mike.wilson, via Flickr

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