FHFA announces principal reduction
Posted by kevin on May 6, 2016 under Foreclosure Blog | 
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Seven years into the mortgage crisis, FHFA finally announced a program that could reduce principal on residential mortgage loans. This has been a political hot potato. After the bailout of FNMA (Fannie Mae) and FHLMC (Freddie Mac) (collectively known as the GSE’s), Director DeMarco was dead set against principal forgiveness. He was supported by Treasury Secretary Geithner. President Obama said that he was in favor of principal forgiveness but it took him about 6 years to get off the schneid. First, he had to replace DeMarco with a more sympathetic Director, Congressman Mel Watt. Two years later, a new program.
But, it is far from a uuuuge program. It affects about only 33,000 significantly underwater mortgages according to reports in Housingwire and National Mortgage News. That’s the bad news. The good news is that NJ has the highest share of properties eligible.
Here’s the deal. The property must be owner occupied, and you have to have been behind at least 90 days as of March 1, 2016. So, no strategic defaults. Fannie or Freddie have to either own the loan or have guaranteed it. The outstanding principal balance must be no more than $250,000 and the mark to market loan to value (MTMLTV) must exceed 115%.
You still capitalize earnings, reduce the interest rate and extend the loan. But the last step is that if the MTMLTV is greater than 115%, you reduce the MTMLTV to 115%. That amount according to one article is forgiven. According to another article, it is put in a suspense account at 0% interest, and if the borrower makes all required payments for a given amount of time, that amount is forgiven.
What the GSE’s had was a principal forbearance program. Same calculations which should lead to the same monthly payment. However, the lesser of 30% of the unpaid principal balance or amounts greater than 115% of MTMLTV is put in a suspense account with 0% interest. So, say that amount is $30,000. It stays in the suspense account until you pay off the loan, sell or refinance. Then, you have to pay back the $30,000 as a balloon payment.
Some may say, too little too late. But, I say it is worth looking into.
If you think you fit into this program or what like to see if you do (or if you are looking for a mortgage modification) contact us at kh@kevinhanlylaw.com.
