US regulators to allow Freddie and Fannie to reduce debt arrears
Apr 20, 2016 09:49 AM EDT
The US regulators announced that they would allow Freddie Mac and Fannie Mae to eliminate debt balances for several borrowers whose loan worth more than their assets. The debt reduction plan would serve as a final chance for earnestly delinquent debtors to save their homes from foreclosure, the Federal Housing Finance Agency (FHFA) said.
The agency said that the program would benefit almost 33,000 debtors across the country. The reduction scheme demands home proprietors to meet few criteria like holding an outstanding cash balance of over $250,000 as well as being delinquent for over 90 days on loan outflows as of March 1.
According to Mel Watt, director of FHFA, while the housing sector in the country has developed significantly over the recent period, home prices in some regions across the US have not recovered and that destructive equity continues to be a serious hurdle. Mel added that debtors would benefit from this program and escape from foreclosures.
Earlier, the agency formulated many strategies to aid home proprietors who were suffering from loan repayments. The agency allowed the US people to buy back foreclosed houses, which were supported by state-owned loan finance firms like Fannie and Freddie, at the present market price, Reuters reported.
Fitch Ratings said in a statement that the number of underwater debtors has declined due to the general rise in home values. Many debtors had been benefited from previous programs like Home Affordable Modification programs and Home Affordable Refinance Program. Non-agency loans are not qualified for such reduction programs.
The loan reduction program will modify the debtors' loans down to a market-to-market loan-to-value ratio of 115%. The terms of the program include converting outstanding loan arrears into capital, trimming interest rates and extensions to a period of 40 years. The reduction program will refrain up to 30% of principal amount if the debtor's loan arrear leniency outstrips 30% of the arrear amount after capitalization.
Meanwhile, Richard Shelby, chairman of Senate Banking Committee, has asked government watchdogs including Congressional Budget Office (GBO) and Government Accountability Office (GAO) to monitor practices at FHFA, Freddie, and Fannie. MORNING CONSULTANT quoted an Alabama Republican who said, "It is my hope that GAO and CBO will provide the Committee with meaningful data regarding the market impact of FHFA's decisions to ensure that Congress takes steps to protect American taxpayers from risk."
In a letter, Richard Shelby has demanded a thorough evaluation of how practices at FHFA and its state-sponsored firms will affect markets as well as an investigation of potential consequences from the agency's loan adjustment policy. The Chairman has asked the GBO to submit the report by July and GAO to submit its findings by November.