Fannie Mae and Freddie Mac Pressured to Write Down Mortgages

Key members of the White House and numerous federal housing officials are now applying more pressure to Fannie Mae and Freddie Mac to reduce loan balances for underwater borrowers. The number of such borrowers is growing, with nearly a quarter of the nation’s homeowners owing more on their homes than they are worth.

The problem with this is, the farther a borrower dips into negative equity, the more likely he/she will be to walk away and allow the property to go into foreclosure. Stemming the foreclosure flow is the goal and where better to start than these two agencies who, together, own or insure approximately half of all home mortgages in America. Currently, homeowners with Fannie or Freddie loans are not eligible for a principal reduction under the Home Affordable Modification Program (HAMP).

However, writing down these mortgage balances would also increase Fannie and Freddie’s losses, which are already in the neighborhood of being $150 billion in the red. Clearly, proponents and opponents of such a measure are very far apart on this issue and resolution alternatives. In the meantime, the housing market will continue to suffer in the short term as foreclosures continue to affect overall home values.