FHFA Approves Principal Reduction Program for GSEs

According to a recent article in National Mortgage News, the Federal Housing Finance Agency (“FHFA”) has authorized government sponsored enterprises (“GSEs”) Fannie Mae and Freddie Mac to offer limited principal forgiveness to underwater borrowers. As stated in the article, FHFA issued guidance to the GSEs’ servicers outlining a principal-reduction program whereby borrowers who have been 90 days or more delinquent as of March 1st and have mark-to-market, loan-to-value ratios that exceed 115 percent will be eligible for relief. The program could help as many as 33,000 seriously delinquent borrowers.

National Mortgage News notes the maximum amount of principal forgiveness is 30 percent of the unpaid principal balance and if borrowers are more underwater than this amount, they may not lower their LTV to below 115 percent. Servicers will be required to furnish to eligible borrowers a solicitation letter by October 15th, 2016 detailing the terms of the modification. According to FHFA Director Mel Watt, the principal reduction program may seem "too small and too late" but it is consistent with FHFA's statutory obligation to help troubled homeowners avoid foreclosure.

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