Thursday, August 2, 2012

Fannie and Freddie Say No to Principal Reductions

According to a recent article from the Chicago Tribune, the two federally run finance companies Fannie Mae and Freddie Mac have rejected the mortgage loan forgiveness program.  The firms jointly said Tuesday that allowing principal reductions “would not make a meaningful improvement in reducing foreclosures in a cost-effective way for taxpayers.”  Both Fannie Mae and Freddie Mac have been operating under the authorization of the housing finance agency since the financial collapse of the autumn of 2008. 

In the beginning of the year, the Treasury Department announced that it would triple the incentive payments it gave mortgage investors that agreed to reduce outstanding loan balances as part of the government's Home Affordable Modification Program.  This attempt by the Department aimed at enhancing the employment of principal forgiveness.  Furthermore, the Treasury offered to extend those incentive payments to Fannie and Freddie.  And for the past several months, the housing finance agency had hinted at considering it.

Yet, the agency has disallowed principal reductions for borrowers whose mortgages are backed by Fannie Mae or Freddie Mac.  Tuesday’s decision is sure to affect many Americans, and Illinoisans, as the two firms own or guarantee more than 50 percent of outstanding mortgages, a market valued at $10 trillion.  During the first quarter, 3.7 percent of Fannie Mae's outstanding mortgages and 3.5 percent of Freddie Mac's were seriously delinquent, meaning payments were at least 90 days past due and foreclosure proceedings could be initiated.

The housing finance agency’s argument hinges on benefiting American taxpayers.  The agency’s acting Director Edward DeMarco stated “nearly all of this benefit [from principal reductions] is simply a transfer from the taxpayers to the enterprises, which would add to the over $188 billion in taxpayer support the enterprises have already received.”  Therefore, along his premise, these mortgage forgiveness programs will only hinder already financially ridden communities.  DeMarco wrote, "Under other reasonable assumptions, implementing [principal forgiveness] would actually increase taxpayer costs."

Yet, as many of us know: Chicago is one of, if not, the worst city in country regarding foreclosure rates.  Although DeMarco and the housing agency intend to meliorate taxpayers, this decisions looks to only set the presently miserable Chicagoland housing conditions back even further.  In the year's first quarter, almost 33% of Chicago-area homeowners with a mortgage were underwater, a percentage higher than the national average, according to housing data provider CoreLogic.  The firm also found that as of May, 10.4 percent of mortgages in the Chicago area were at least 90 days past due.  On top of all of this, a massive 357,000 Illinois homeowners with Fannie- or Freddie-backed mortgages are underwater.  Only three other states have more underwater mortgages with Fannie- or Freddie-backed loans.

Tom Feltner of the Woodstock Institute, a Chicago-based nonprofit research and policy organization, said that this decision "is extremely problematic for the Chicago housing market."

The housing crisis of 2008 has still left much of this country in shambles.  As illustrated here, solving the foreclosure process on both an individual and macroeconomic levels is a complex and convoluted task.  Yet, one fact remains:  Dealing with the troubles of foreclosure should not be done alone.  If you at all are experiencing any legal woes regarding home mortgages and foreclosures contact our Oak Park foreclosure defense attorneys right away.  You deserve to be defended--whatever your case may be.  And we can provide that aid for you.  

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