FHFA Director Watt Says Announcement on Principal Reduction Strategy Imminent

Last Tuesday, March 22nd, the Federal Housing Finance Agency (“FHFA”) Director Mel Watt said the agency will announce within the next 30 days whether it will endorse a principal reduction strategy for the government sponsored enterprises (“GSEs”) Fannie Mae and Freddie Mac. According to a recent article in National Mortgage News, Watt told audiences, “We are, however, drawing close to the end of this difficult process, and I expect to announce a decision within the next 30 days about whether we have been able to find a 'win-win' principal reduction strategy or whether, on the other hand, we will take principal reduction off the table entirely.”

Watt’s remarks come one day after the Wall Street Journal reported that the FHFA has already approved a plan under which fewer than 50,000 “underwater” homeowners, who owe more than their homes are worth and are already behind in their mortgage payments, will likely be eligible to have their mortgage balances cut. According to the article, the GSEs would allow principal forgiveness only when it would result in fewer losses than other strategies. However, Watt’s speech suggests that the FHFA is still deliberating its final strategy. As he stated last week, "It would not be an overstatement to say that this has been the most challenging evaluation the agency has undertaken during my time as director."

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