Fannie Mae, Freddie Mac to Reduce Principal

Reduction of Principals Coming From Fannie Mac and Freddie MacYes, you heard it straight !!!  California is continuing to push to prevent foreclosures. . . and Fannie Mae and Freddie Mac borrowers may see their mortgages shrink through principal reduction.

A significant change is being made by state officials to the Keep Your Home California program.  They are dropping a requirement that banks match taxpayers’ funds when homeowners receive mortgage reductions through the program.  Previously, the program was facing lackluster participation and lender resistance, but now that the requirement that banks provide matching funds, well . . . let’s just say that now the banks are more willing to participate.  Hmmmm . . ..

Hopefully, increased participation by Fannie Mae and Freddie Mac will provide a major boost to the Keep Your Home California program.  Fannie Mae and Freddie Mac own about 62% of outstanding mortgages in California, but neither institution has elected to participate in principal reduction due to concerns about adding additional costs to taxpayers.

Fannie Mae and Freddie Mac were seized by the Feds in 2008 when bordering on bankruptcy – we, the taxpayers, have provided $188 billion to keep them afloat.  These two institutions last year made it their policy to participate in state-run principal reduction programs such as Keep Your Home California – as long as they or the mortgage companies that work for them didn’t have to contribute funds.

Housing advocates have argued that reducing mortgages of underwater borrowers would boost the housing market by giving incentive to homeowners to keep paying off their loans – And would reduce foreclosures by lowering the monthly payments for underwater homeowners, giving them hope that one day they would again have equity in their homes.

Other requirements of financial institutions will be to make other modifications to loans such as reducing the interest rate or changing the terms of the loan.  The changes to the Keep Your Home California program will roll out in early June . . . so Hang In There, underwater borrowers . . . sounds like help is on the way !!!