Three-quarters of a decade after the global economic crisis, the Obama administration decided to grant debt relief to Americans whose home values plummeted after financial markets were tanked by Wall Street.
The Federal Housing Finance Agency (FHFA) announced last week it would grant mortgage principal reductions to about 33,000 underwater homeowners — those who owe more than their property is currently worth. FHFA Director Mel Watt hailed the current state of the economy, but warned that “there are still areas of the country where home values have not recovered.”
The agency is facilitating the debt write-downs through Fannie Mae and Freddie Mac, so-called government sponsored enterprises that insure and own mortgages. A mortgage principal refers to a homeowner’s outstanding balance.
Relief will be granted to those who were three months behind on payments as of March 1 and who also owe $250,000 or less.
The FHFA has in recent years granted Fannie and Freddie the authority to offer payment modifications to troubled homeowners, but the program announced last week marks the first time that overall mortgage debt relief has been granted by the agency.
The timing and scope of the initiative was the subject on Monday of intense criticism from Sen. Elizabeth Warren (D-Mass.), a longtime advocate of FHFA principal reduction. She called the announcement “a bitter pill to swallow for the millions of homeowners who could have benefitted from a much broader program years ago.”
“The big banks got their money immediately — but, for eight years, homeowners never got their principal reduction program, even though studies showed that such a program could have helped a large number of homeowners and saved Fannie and Freddie billions of dollars,” Warren said. “FHFA’s refusal to act sooner represents a failure of leadership by both Director Watt and his predecessor.”
According to The Wall Street Journal, homeowners who go through the program will still be left with loan balances greater than 15 percent of their properties’ market value.
The paper noted data showing that there were 4.3 million underwater homeowners at the end of last year, down from 12 million in 2009.