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Fannie Mae, Freddie Mac say principal reductions would save housing

Loan forgiveness is a very controversial measure, but one that Fannie Mae and Freddie Mac urge their conservator, the Federal Housing Finance Agency to consider as it could keep homeowners in their homes and save the mortgage giants billions of taxpayer dollars. The FHFA’s study shows the opposite is true.

Controversial principal reductions

As local, state, federal and financial agencies scramble to come up with the solution to the housing crisis, the most contentious issue has been regarding principal reductions. After the $25 billion mortgage settlement between 49 attorneys general, the federal government and the five largest mortgage servicers, Bank of America struck a separate deal, offering principal reductions averaging over $100,000. Other servicers and agencies are experimenting with the same.

Despite the Federal Housing Finance Agency (FHFA) which regulates Fannie Mae and Freddie Mac asserting in a statement that pincipal reductions at Fannie and Freddie would cost taxpayers another $100 billion, the Obama administration also announced recently that it would offer incentives to Fannie and Freddie to reduce principal on loans which previously was only offered to private entities and banks.

ProPublica.com reports that Fannie and Freddie proclaim not only is principal reductions the savior to homeowners, but to the very existence of Fannie and Freddie.

Loan forgiveness would theoretically keep hundreds of thousands of homeowners in their homes, but would save Fannie and Freddie money, thus saving taxpayers over $150 billion, as the FHFA is the federal conservator to the two mortgage giants and Americans are therefore responsible for future losses until Fannie and Freddie are privatized, which the government has said is the ultimate plan of the agency.

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The analyses of the principal reduction plan has not been made public but were presented to the FHFA, after which lawmakers called upon the FHFA to provide the analyses to them which ultimately could make the analyses public and potentially pave the way for other organizations to begin loan forgiveness.

The plan of principal forgiveness has many critics and some lawmakers advocate for the real estate market to find its own bottom naturally so that a recovery is not dependent upon the government’s intervention, or is the market falsely propped up.

Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

23 Comments

23 Comments

  1. Roland Estrada

    March 26, 2012 at 11:32 pm

    I definitely advocate for a free-market to play a major role in the US economy. However, given that the government was at the root of the housing crash, they should step in and offer some kind equity assistance to those who can afford their payments but are upside-down in their homes. There should be some kind of mandatory logical outline given to banks. In essence it’s what should been part of the first bailout. Let’s apology to the folks from the Feds for screwing up in the first place. Then our legislators can continue on with their virtuous lives in tact. 😉

  2. Paula Mallory

    May 10, 2012 at 6:32 pm

    yes

  3. Ryan Schattner

    May 10, 2012 at 6:32 pm

    Yeah those numbers a quite a bit different.

  4. Cre8tiveApps.com

    May 10, 2012 at 6:32 pm

    So break even give or take 50 billion?

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