Freddie Mac and Fannie Mae Announce Mortgage Balance Cuts

Qualified homeowners may see their mortgage balances reduced

Freddie Mac and Fannie Mae Announce Mortgage Balance Cuts
March 22, 2016

Freddie Mac and Fannie Mae have announced that as many as 50,000 homeowners may be eligible for mortgage balance reductions. The Federal Housing Finance Agency (FHFA) has approved the new plan that is aimed at helping those who are struggling to pay their monthly mortgage payments. However, many feel that the plan does not go far enough.

The main problem housing advocates see with the proposed balance cuts is that the guidelines are too restrictive. While the full plan has not yet been released, it is expected to only apply to as few as 50,000 homeowners. To take advantage of this program, homeowners must be behind on their monthly mortgage payments and have a balance higher than the worth of their home.

In addition to meeting these two requirements, each mortgage will be evaluated by experts from the two agencies to determine if they would lose less money by forgiving principal than they would through other foreclosure-prevention options. If it is determined that they would not, then the homeowner will be denied a balance cut.

Even those who are approved for a balance reduction will most likely still have an outstanding mortgage balance that is higher than their home’s value. However, the reduction will help reduce their monthly mortgage payments, making it easier for them to make those payments.

Policymakers have expressed doubts about similar programs in the past owing to the tight restrictions on who can take advantage of them.

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