We posted a blog yesterday stating that loan modifications that reduced principal for borrowers with loans insured by Fannie Mae and Freddie Mac were being considered by their regulator, the Federal Housing Finance Authority (FHFA). Since then, Fannie Mae has announced the Fannie Mae Principal Reduction Modification Program. According to their website:
"This program assists seriously delinquent underwater borrowers to recover from home value depreciation experienced as a result of the housing crisis."
The program offers a one-time principal reduction for borrowers who meet specific criteria, including:
- Property must be first-lien, non-investment property
- Loan must be at least 90 days delinquent as of March 1, 2016
- Mortgage is in negative equity
- Unpaid principal balance is less than or equal to $250,000
- Post-modification mark-to-market loan-to-value ratio that is greater than 115%
- The property securing the mortgage may be vacant or condemned
- The mortgage loan must not have been modified three or more times previously
- Must be at least 30 days delinquent on the evaluation date
- Mortgage must not have been originated less than 12 months prior to the evaluation date
- Property must not have a scheduled foreclosure date within 60 days of evaluation in judicial states or 30 in nonjudicial states
- Borrower must not have failed a trial period plan under Fannie Mae Standard or Streamlined Modification within 12 months of being evaluated for Principal Reduction Modification
The press release from Fannie Mae says that only about 22,000 loans will be eligible for the program.
Information on how the program would affect investors, mortgage backed securities, and loan servicers was also released. You can read the whole press release here.
Negative equity and low equity have been a huge problem since the housing crisis caused prices to crash. By some estimates, as many as 40% of homeowners have no equity or not enough to sell their home and make a down payment and pay closing costs on another. Most of the large mortgage-lending banks already offer principal-reducing loan modification programs. Critics have long called for Fannie to follow suit.