FHFA Announces Principal Reduction Plan

Borrowers who are seriously delinquent on loans owned or guaranteed by Fannie Mae or Freddie Mac may be eligible for a one-time principal reduction to help them avoid foreclosure and stay in their homes, the Federal Housing Finance Agency announced today. The one-time loan modification will be offered to owner-occupied borrowers with unpaid principal balances of $250,000 or less who have been delinquent for 90 days or more as of March 1, 2016. FHFA estimates that 33,000 borrowers may be eligible for a modification.

The FHFA also announced several enhancements to its guidelines for sales of non-performing loans by the GSEs. The new guidelines require NPL buyers to evaluate underwater borrowers for modifications that include principal and/or arrearage forgiveness; forbid buyers from abandoning liens on vacant homes; and establish more specific proprietary loan standards for NPL buyers. FHFA will also require NPL buyers and servicers to report resolution results and borrower outcomes for four years after the sale of the NPL.

“The national housing market has significantly improved in recent years but there are still areas of the country where home values have not recovered and negative equity remains a problem,” said FHFA Director Mel Watt, who signaled today’s decision in a speech last month. “The principal reduction modification program, along with the changes we are making to our NPL sales guidelines, will allow an opportunity for delinquent, underwater borrowers in these areas to avoid foreclosure and save their homes.”