FHFA Director Says Fannie, Freddie Flirting with Principal Reduction

Reuters reported on April 10, 2012, that the acting director of the Federal Housing Finance Agency (FHFA), Edward DeMarco, said it might make sense for Fannie Mae and Freddie Mac to write down loan principal under an Obama administration plan. During a speech at the Brookings Institution, the regulator added that further study would be needed, but said preliminary analysis indicated the firms could save $1.7 billion under the plan to have the housing finance companies cut loan balances for so-called “underwater” borrowers who owe more than their homes are worth.

MSNBC noted that the value of American homes has fallen by some $7 trillion since the housing market’s collapse in 2006, with some 11 million homeowners having negative equity in their homes. DeMarco said that principal reduction would help only about one million of these borrowers, and also added that an “aspect to be considered was that the program might encourage borrowers to strategically default to obtain aid, driving up the cost,” according to Reuters. “This is not about some huge difference-making program that will rescue the housing market,” DeMarco said.

It is unfortunate when homeowners who have been unable to secure refinancing, receive a loan modification or complete a short sale are portrayed as villains for taking advantage of a strategic default. Homeowners who are struggling in this economy deserve to know all of their options, and should always take the legal route that is best for them and their families. Another option for homeowners who are underwater and are unable to sell their house is Chapter 7 bankruptcy.

While many clients want to try and save their homes, this week I want to focus on how Chapter 7 helps families that are prepared to give those homes up. If you are tired of waiting for the government to provide meaningful help for your mortgage, you owe it to yourself to take steps today that can help you take control of your financial situation.

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