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Principal Reduction Door still Ajar

Thursday, March 24, 2016

It could be a little like the fabled barn door - closed but locking up little more than hay and manure - but the Federal Housing Finance Agency (FHFA) seems to be nearing a final decision as to whether Fannie Mae and Freddie Mac will be allowed to incorporate principal reduction into their loan modifications.  Five years ago this would have been a big story.  Actually five years ago it was a big story, but now we are on the flip side.

Some history:

As home prices fell, delinquencies rose, and home equity disappeared many lenders began to reduce the principal on delinquent and underwater mortgages as part of some loan workouts and restructures both to reduce monthly payments and as an incentive to homeowners to hang on to their homes rather than throwing in the towel.  By early 2013 principal reductions played a role in 70 percent of non-GSE restructures done under the Home Affordable Modification Program (HAMP)

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