The Obama supervision is reportedly pressuring Fannie Mae and Freddie Mac to sell out mortgage balances of underwater homeowners.
The supervision wants the two mortgage giants to underwater homeowners, underwater mortgages, Fannie Mae, Freddie Mac join the Federal Housing supervision program that lowers mortgage balances of homeowners with first mortgages larger than their home values, The Wall street Journal reports, citing "people well-known with the situation."
Current Fannie Mae Refi Plus Programs
That would be a big deal if it happens - Fannie Mae and Freddie Mac own or warrant about half of the first mortgages in the country. But then again, based on the Fha's experience, you'd have to wonder if it will work.
Obama's population evidently believe that reducing mortgage balances will help the housing shop and sell out foreclosures. But the problem is that you don't get something for nothing, and lenders and investors owning mortgages lose money when they sell out mortgage balances.
Fannie Mae and Freddie Mac are now under government conservatorship, so if they lose money U.S. Taxpayers lose. And their regulator, the Federal Housing Finance Agency, is charged with rescue the taxpayers money. As it stands now, the mortgage giants already owe the government 4 billion.
If they cut mortgage balances, they can't try to force the lender to buyback the loan and can't file a claim with the mortgage guarnatee company. That's why Fannie Mae and Freddie Mac don't do sell out mortgage balances now, or at least rarely do.
Its effectiveness is someone else issue.
Federal officials say 500,000 to 1.5 million homeowners could benefit from such a program, agreeing to the Wsj. Even if that's true, it would be a drop in the bucket. Some researchers assessment that roughly a quarter of households with mortgages might be underwater.
And would it for real prevent mortgage defaults and foreclosures?
Don Bisenius, a Freddie Mac menagerial vice president, told the Wsj that "the vast majority of borrowers - even borrowers who are underwater - continue manufacture their payments."
Second mortgages pose someone else problem. Lenders might refuse to sell out the mortgage critical if the second-mortgage lenders balk at cutting critical balances on their loans.
So far, the Fha Short program, which refinances mortgages of underwater homeowners, has prompted more controversy and commentary than revision in the housing market. Although up to 1.5 million homeowners were supposed to be eligible for the program, it has refinanced high-priced few loans. Lender participation is voluntary and few lenders are participating. Combined loan to values, or the first and second mortgage combined, must be no more than 115 percent, under the program's rules, which limits participation.
Second-mortgage lenders have commonly been unwilling to take losses. Homeowner applications to the program have been limited, probably because of the program's guidelines and paperwork requirements.
Borrowers commenting on our blog have expressed dissatisfaction about the program.
Underwater homeowners can also apply for the Home Affordable Refinance Program (Harp) to refinance into current mortgage rates.
Fannie Mae and Freddie Mac May Help Underwater Homeowners
