Are you an underwater borrower? Freddie Mac and Fannie Mae have several
tools that may be useful in these situations, one of which is known as
principal forgiveness. In the context of Home Affordable Modification
Program Principal Reduction Alternative (HAMP PRA), the aim of principal
forgiveness is to assist delinquent borrowers or those for whom default
The modification programs offered by Freddie Mac and Fannie Mae provide
eligible borrowers who are willing and able to make a monthly mortgage
payment with opportunities to obtain an affordable monthly payment. Those
who are not eligible for a modification under HAMP may seek relief with
a proprietary modification.
In response to a request from Congress, the Federal Housing Finance Agency
(FHFA) disclosed the analysis to the public that lead to the exclusion
of principal forgiveness from its set of loss mitigation tools. In the
announcement, the FHFA explained their role as conservator and regulator
of Freddie Mac and Fanny Mae (the Enterprises) under three rules established
by Congress directing its decisions and activities.
These mandates include:
1. The FHFA is responsible by law to conserve and preserve the asserts
of the entities (conservatorship).
2. The obligations and missions of the Enterprises are the same as they
were prior to the conservatorship, with the FHFA present to ensure that
the Enterprises maintain liquidity in the housing market in times of economic trouble.
3. The FHFA is obligated by law to ensure that maximum assistance is provided
to struggling homeowners to keep the foreclosure rate to a minimum.
This set of rules mandates every policy decision the Agency makes, including
the decision now to allow the Enterprises to engage in principal forgiveness.
After extensive analysis, the FHFA has found that the benefits of principal
forgiveness do not outweigh its costs, and that principal forbearance
(an alternate approach currently used by the Enterprises) is the better
method. The analysis showed that the HAMP alternative program was an ineffective
means of avoiding foreclosure while reducing taxpayer costs.
Borrowers who have remained current on their mortgage payments or who have
loans originating prior to May 31, 2009 can benefit from recent changes
to the Home Affordable Refinance Program (HARP). These changes will now
allow all underwater borrowers to refinance their mortgages at lower interest rates.
foreclosure on your home?
Seek legal counsel at Sulaiman Law Group, LTD. Call us at (312) 313-1613
to request a consultation.