Fannie, Freddie: the two government entities leader or housing regulator Edward DeMarco said this last Tuesday there will be no benefit to principle reductions of troubled borrowers who are upside down and has ordered all firms or institutions to not allow any help that is provided in the guidelines of the HAMP (Home Affordable Modification Program) and HARP (Home Affordable Refinance Program). He stated: “we concluded that the potential benefit was too small and uncertain, relative to the known and unknown costs and risks”. THIS IS DEVASTATING!!!
Treasury Secretary, Timothy Geithner noted that in the agency’s own analysis, that Fannie and Freddie could save $3.7 billion by participating in the administration’s housing programs (HAMP & HARP), the taxpayers would save $1 billion. My commentary is that the institutions once again are controlling this country and not the government. The Obama administration, lawmakers on Capitol Hill, and housing advocates argue that principle reduction is an essential tool to help the 5 year crisis that is still going strong due to millions or about a quarter of the nation’s homeowners are under water, representing excessive mortgage debt of about $700billion!! This decision could burst the bubble that was going down in size due to the workout programs in place that have temporarily bandaged the real estate market, but now with no real help in the near future, the average homeowner who is on the fence will bail or walk away from their home. Coupled with the fact that many state laws have provisions protecting homeowners through the end of this year, I expect an onslaught of upside down homeowners to short sale their homes to take advantage of salvaging incentives currently being offered by most banks.
DeMarco, in his statement noted that only a small percentage of homeowners would strategically default on their mortgage, while most advocates would encourage it, so the savings would literally disappear for the agencies and the taxpayer. I say this is Chicken Little-type thinking and he is playing this game to not allow further losses to the institutions, who I believe are running the show!! Further, he also stated that the institutions investors would be spooked over this reduction program causing an increase in mortgage costs in the future. Another statement that shows the banks rule!!
In conclusion, the gains that have been made in the current real estate market are clearly at risk now, and will no doubt cause an increase of activity in sales and foreclosures in the near future, resulting in values stagnating, to possible reductions more likely. You can view more on this recent development here: http://www.fhfa.gov/webfiles/
Your comments are appreciated. What are your thoughts on this recent real estate news?