After years of speculation and equivocation, Fannie Mae and Freddie Mac will begin to cut the mortgage balances for a number of homeowners later this year, according to a report from The Wall Street Journal.
The Wall Street Journal report, written by Joe Light, states that the Federal Housing Finance Agency recently approved a plan for the government-sponsored enterprises to engage in principal reduction on a large scale for the first time since the housing crisis.
For years their leaders claimed this would never happen. They all said the GSEs were in conservatorship, not receivership, and so a reduction in asset values would be counterintuitive to that status.
Perhaps this is why the scale of the reduction program is not as significant as some might expect, as Light reports.
From the WSJ:
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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, people familiar with the matter said.
Fannie and Freddie—which don’t make mortgages but rather buy them from lenders and wrap them into guaranteed securities—would also forgive principal only in cases where they determine the companies would lose less money with that option than foreclosure or other foreclosure-prevention methods. In addition, the new program will likely be limited to mortgages whose outstanding principal balance is under a certain dollar amount, people familiar with the matter said.