Freddie and Fannie won't pay down your mortgage
The two largest owners of mortgages will not lower the principal on the loans they back – that’s a clear message for all those troubled homeowners. Fannie Mae and Freddie Mac, which are controlled by the federal government, will not lower the principal on the loans they back, instead opting for interest rate reductions and term extensions when modifying loans. But their stance is out of synch with the Obama administration, which is seeking to expand the use of principal writedowns. In late March, it announced servicers will be required to consider lowering balances in loan modifications. Asked whether they will implement balance reductions, the companies and their regulator declined to comment.
The Treasury Department also declined to comment. What's holding them back is the companies' mandate to conserve their assets and limit their need for taxpayer-funded cash infusions, experts said. If Fannie and Freddie lower homeowners' loan balances, they are locking in losses because they have to write down the value of those mortgages. Essentially, that means using tax dollars to pay people's mortgages. Between them, they have received $127 billion -- and recently requested another $19 billion -- from the Treasury Department since they were placed into conservatorship in September 2008, at the height of the financial crisis. Treasury and the companies have already set aside $75 billion for foreclosure prevention, which can be spent on interest-rate reductions or principal write downs. Meanwhile, a growing number of loans backed by Fannie and Freddie are falling into default.
The two largest owners of mortgages will not lower the principal on the loans they back – that’s a clear message for all those troubled homeowners. Fannie Mae and Freddie Mac, which are controlled by the federal government, will not lower the principal on the loans they back, instead opting for interest rate reductions and term extensions when modifying loans. But their stance is out of synch with the Obama administration, which is seeking to expand the use of principal writedowns. In late March, it announced servicers will be required to consider lowering balances in loan modifications. Asked whether they will implement balance reductions, the companies and their regulator declined to comment.
The Treasury Department also declined to comment. What's holding them back is the companies' mandate to conserve their assets and limit their need for taxpayer-funded cash infusions, experts said. If Fannie and Freddie lower homeowners' loan balances, they are locking in losses because they have to write down the value of those mortgages. Essentially, that means using tax dollars to pay people's mortgages. Between them, they have received $127 billion -- and recently requested another $19 billion -- from the Treasury Department since they were placed into conservatorship in September 2008, at the height of the financial crisis. Treasury and the companies have already set aside $75 billion for foreclosure prevention, which can be spent on interest-rate reductions or principal write downs. Meanwhile, a growing number of loans backed by Fannie and Freddie are falling into default.
