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Mortgage Principal-Reductions Remain Only a Dream

The Federal Housing Finance Agency acknowledges its mandate to offer the maximum assistance posible to distressed homeowners.  And, it conceds that principal reductions would provide much needed relief to negative equity homeowners.  However, it maintains that current loss mitigation tools in use allow it to fulfill its laudable mission without resorting to principal reductions to eliminate negative equity situations.

Among their current arsenal of Fannir Mae adn Freddie Mac mortgage loss mitigation tools, the FHFA insists that modification programs which offer interest only or negative amortization payments (without any reduction in the rate of interest earned by Fannie and Freddie, so, no refinancing please) result in the same amount of monthly payment reduction for underwater homeowners.  The negative amortization modifications are achieved without risking Fannie’s or Freddie's tenuous (and illusory) grasp on liquidity (the reason they were brought under conservatorship in the first place).

Thus, Fannie/Freddie-instituted cramdowns will remain a distant dream for underwater homeowners barring the unlikely event of a congressional mandate in favor of the debtor class.

Here's a link to the Jan 20, 2012 FHFA report...

http://www.fhfa.gov/webfiles/23056/PrincipalForgivenessltr12312.pdf

(Excerpts from firsttuesday)

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