According to the White House Fannie Mae and Freddie Mac will not be ordered to forgive mortgage debt for underwater homeowners; despite rumors the rumors circulating Washington D.C. to the contrary.
“The administration is not considering a change in policy in this area,” said Treasury spokesman Andrew Williams.
This is probably not the news troubled homeowners want to hear who are hoping for loan modifications. Even though there is a large amount of evidence supporting principal reductions as one of the most successful ways to keep underwater homeowners in their homes, lenders and investors are still resistant to doing them.
Strategic defaults anyone? If housing market continues to slide, underwater homeowners may just decide it makes more sense to give them back and start over.
Fannie Mae and Freddie Mac are government-sponsored mortgage finance agencies, which own or guarantee approximately half of U.S. mortgages, were taken over by the federal government at the height of the financial crisis in 2008 due to severe loan losses.
The purpose of Fannie Mae and Freddie Mac is to promote affordable housing. Operating under a federal mandate the companies buy mortgages from lenders who loan directly to home owners and repackage them as securities or hold them in their own portfolio.