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Fannie, Freddie to let underwater homeowners out of mortgages

In an extremely controversial move, Fannie and Freddie have decided to allow underwater homeowners out of their mortgages if they continued to pay on time.

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Relief for underwater homeowners

Beginning next month, Fannie Mae and Freddie Mac will allow underwater homeowners to walk away from their homes in a controversial move to offer relief to homeowners who have kept up with their payments, according to Bloomberg.com. While most contention has centered around homeowners that fail to or cannot pay their mortgages, many argue that homeowners owing more than their house is worth are also victims of the recession, which Fannie and Freddie intend to address.

The two mortgage giants back the majority of home loans in America, totaling over $5.2 trillion in mortgages. If homeowners with loans backed by Fannie or Freddie can show they owe more than their house is worth but have paid their loan on time, and they can show they need to relocate due to work, illness, or other qualifying reasons, they can apply for a deed-in-lieu transaction which will forgive the difference between the home’s value and the remaining balance on the mortgage, in exchange for handing the property over.

Bloomberg reports that under specific circumstances, underwater homeowners may still be required to pay a portion of the difference as a cash contribution of up to 20 percent of their financial reserves (excluding retirement funds), or a promissory note for future no-interest repayments.

Support for this controversial move

Supporters note that previous attempts to help struggling homeowners pushed borrowers to default before they could receive help, whereas this program incentivizes only behavior that is positive and keeps their loan on track, noting that underwater homeowners didn’t make a bad purchase decision, rather were punished by lending and housing policies that crashed the economy.

“Fannie and Freddie are finally recognizing that some people are stuck in their homes,” the director of housing finance and policy at the Center for American Progress tells Bloomberg. “There are a lot of families who need to move who can’t do it if they’re going to have debt hanging over their heads. There’s no winner when someone is forced to default on their mortgage — not the investor, not the homeowner, and certainly not the neighborhood.”

Criticism for this controversial move

Some suspect the timing of the announcement, as the housing sector is finally beginning to improve, with home values steadily improving – with Fannie and Freddie owing taxpayers a combined $190 billion, it could stunt their ability to repay.

“It’s an extraordinarily generous approach for companies still in debt to American taxpayers,” said Phillip Swagel, a professor at the University of Maryland’s School of Public Policy in College Park, Maryland. “We’re giving people an incentive to walk away, right when the housing market is starting to right itself.”

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.

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6 Comments

6 Comments

  1. Brad Yzermans

    January 29, 2013 at 7:11 pm

    How is this any different than a regular short sale and not having had
    any late payments? Homeowners with Fannie/Freddie loans have always
    been able to apply for a hardship (relocate, job transfer, illness) and short sale their home.

    What would you consider to be the biggest benefit of a deed-in-lieu
    versus a short sale?

    If short selling with no late payments, a borrower would be able to qualify and buy again much sooner using FHA financing than if they did a deed-in-lieu.

  2. Mark Miller

    January 30, 2013 at 10:01 am

    The value of your home has nothing to do with your ability to pay the mortgage. If you can pay the mortgage, over 30 years, the house will be paid off and it will be worth more than you owe since you’ll owe zero. Two people buy 300K houses side by side. One puts down 20% and the other 0%. If the house is now worth 250K, one guy is under water and the other is not. How is this scheme fair to the guy who put down 20% and still saw the home value drop?

  3. MattThomson

    January 30, 2013 at 11:14 pm

    Seems worse than a short sale to me. Short sales rarely have to pay 20% of their cash reserves.

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Austin

Austin tops the list of best places to buy a home

When looking to buy a home, taking the long view is important before making such a huge investment – where are the best places to make that commitment?

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Looking at the bigger picture

(REALUOSO.COM) – Let us first express that although we are completely biased about Texas (we’re headquartered here, I personally grew up here), the data is not – Texas is the best. That’s a scientific fact. There’s a running joke in Austin that if there is a list of “best places to [anything],” we’re on it, and the joke causes eye rolls instead of humility (we’re sore winners and sore losers in this town).

That said, SelfStorage.com dug into the data and determined that the top 12 places to buy a home are currently Texas and North Carolina (and Portland, I guess you’re okay too or whatever).

They examined the nerdiest of numbers from the compound annual growth rate in inflation-adjusted GDP to cost premium, affordability, taxes, job growth, and housing availability.

“Buying a house is a big decision and a big commitment,” the company notes. “Although U.S. home prices have risen in the long term, the last decade has shown that path is sometimes full of twists, turns, dizzying heights and steep, abrupt falls. Today, home prices are stabilizing and increasing in most areas of the U.S.”

Click here to continue reading the list of the 12 best places to buy a home…

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Housing News

Average age of houses on the rise, so is it now better or worse to buy new?

With aging housing in America, are first-time buyers better off buying new or existing homes? The average age of a home is rising, as is the price of new housing, so a shift could be upon us.

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The average home age is higher than ever

(REALUOSO.COM) – In a survey from the Department of Housing and Urban Development American Housing Survey (AHS), the median age of homes in the United States was 35 years old. In Texas, homes are a bit younger with the median age between 19 – 29 years. The northeast has the oldest homes, with the median age between 50 – 61 years. In 1985, the median age of a home was only 23 years.

With more houses around 40 years old, the National Association of Realtors asserts that homeowners will have to undertake remodeling and renovation projects before selling unless the home is sold as-is, in which case the buyer will be responsible to update their new residence. Even homeowners who aren’t selling will need to consider remodeling for structural and aesthetic reasons.

Prices of new homes on the rise

Newer homes cost more than they used to. The price differential between new homes and older homes has increased from 10 percent traditionally to around 37 percent in 2014. This is due to rising construction costs, scarcity of lots, and a low inventory of new homes that doesn’t meet the demand.

Click here to continue reading this story…

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Housing News

Are Realtors the real loser in the fight between Zillow Group and Move, Inc.?

The last year has been one of dramatic and rapid change in the real estate tech sector, but Realtors are vulnerable, and we’re worried.

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Why Realtors are vulnerable to these rapid changes

(REALUOSO.COM) – Corporate warfare demands headlines in every industry, but in the real estate tech sector, a storm has been brewing for years, which in the last year has come to a head. Zillow Group and Move, Inc. (which is owned by News Corp. and operates ListHub, Realtor.com, TopProducer, and other brands) have been competing for a decade now, and the race has appeared to be an aggressive yet polite boxing match. Last year, the gloves came off, and now, they’ve drawn swords and appear to want blood.

Note: We’ll let you decide which company plays which role in the image above.

So how then, does any of this make Realtors the victims of this sword fight? Let’s get everyone up to speed, and then we’ll discuss.

1. Zillow poaches top talent, Move/NAR sues

It all started last year when the gloves came off – Move’s Chief Strategy Officer (who was also Realtor.com’s President), Errol Samuelson jumped ship and joined Zillow on the same day he phoned in his resignation without notice. He left under questionable circumstances, which has led to a lengthy legal battle (wherein Move and NAR have sued Zillow and Samuelson over allegations of breach of contract, breach of fiduciary duty, and misappropriation of trade secrets), with the most recent motion being for contempt, which a judge granted to Move/NAR after the mysterious “Samuelson Memo” surfaced.

Salt was added to the wound when Move awarded Samuelson’s job to Move veteran, Curt Beardsley, who days after Samuelson left, also defected to Zillow. This too led to a lawsuit, with allegations including breach of contract, violation of corporations code, illegal dumping of stocks, and Move has sought restitution. These charges are extremely serious, but demanded slightly less attention than the ongoing lawsuit against Samuelson.

2. Two major media brands emerge

Last fall, the News Corp. acquisition of Move, Inc. was given the green light by the feds, and this month, Zillow finalized their acquisition of Trulia.

…Click here to continue reading this story…

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