Housing experts, however, say it’s time for Fannie and Freddie to start reducing principal. Between them, they have received $127 billion - and recently requested another $19 billion - from the Treasury Department since they were placed into conservatorship in September 2008, at the height of the financial crisis. The housing crisis has already wreaked havoc on the pair’s balance sheets.
Essentially, that means using tax dollars to pay people’s mortgages. If Fannie and Freddie lower homeowners’ loan balances, they are locking in losses because they have to write down the value of those mortgages. What’s holding them back is the companies’ mandate to conserve their assets and limit their need for taxpayer-funded cash infusions, experts said. The Treasury Department also declined to comment. And just who would tell Fannie and Freddie to start allowing principal reductions? The Obama administration.Īsked whether they will implement balance reductions, the companies and their regulator declined to comment. In late March, it announced servicers will be required to consider lowering balances in loan modifications. NEW YORK () - Pressure is mounting on loan servicers and investors to reduce troubled homeowners’ loan balances…but the two largest owners of mortgages aren’t getting the message.įannie Mae and Freddie Mac, which are controlled by the federal government, do not lower the principal on the loans they back, instead opting for interest rate reductions and term extensions when modifying loans.īut their stance is out of synch with the Obama administration, which is seeking to expand the use of principal writedowns.
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