The Federal Housing Finance Agency on April 14 announced thenew Principal Reduction Modification programfor borrowers whose loans are owned or guaranteed by Fannie Mae or FreddieMac and who meet specific eligibility criteria.
The FHFA said the program is a one-time offering under whichFannie Mae and Freddie Mac will offer principal reduction to certain seriously delinquent,underwater borrowers still struggling in the aftermath of the financial crisis tohelp them avoid foreclosure.
The modification will be available to owner-occupant borrowerswho are 90 days or more delinquent as of March 1, whose mortgages have an outstandingunpaid principal balance of $250,000 or less, and whose mark-to-market loan-to-valueratios exceed 115%. The FHFA expects that approximately 33,000 borrowers will beeligible for the program. Servicers mustsolicit borrowers eligible for a principal reduction modification no later thanOct. 15.
New York Attorney General Eric Schneiderman issued a statementcommending the FHFA's program, but pointed out that while the program is a "goodstart," the requirements will disqualify thousands of New Yorkers in many areasaffected by the foreclosure crisis. He said in New York alone, almost 60,000 familieswith mortgages backed by Fannie Mae and Freddie Mac were in default and at riskof foreclosure as recently as 2013.
"I look forward to working with housing experts and advocatesin the coming weeks and months to urge the FHFA to build on today's important announcementand expand this program to benefit all of those who need mortgage debt relief,"Schneiderman said in his statement.
The FHFA also approved further enhancements to its requirementsfor Freddie Mac and Fannie Mae's sales of nonperforming loans. The new enhancementsestablish that NPL buyers must evaluate borrowers whose mark-to-market loan-to-valueratio exceeds 115% for modifications that include principal reduction and/or arrearageforgiveness, forbid NPL buyers from unilaterally releasing liens and "walkingaway" from vacant properties, and establish more specific proprietary loanmodification standards for NPL buyers.
The FHFA said the enhancements are designed to minimize foreclosures,help mitigate the potential for neighborhood blight and decay, and help improveloan modification success rates.
"This plan will no doubt be viewed by some as too smalland too late and viewed by others as too large and unnecessary," FHFA DirectorMelvin Watt said in a news release. "However, the plan is consistent with FHFA'sstatutory obligation to 'maximize assistance for homeowners' by providing some borrowerswhat could well be their final opportunity to avoid foreclosure. It is also consistentwith our statutory obligation to provide this assistance in ways that we reasonablyexpect will not have adverse economic consequences for the Enterprises."