Fannie, Freddie to test principal reduction pilot program

There have been numerous calls for mortgage principal reductions since the housing market collapse, but industry leaders claimed their potential effects needed to be carefully analyzed before such an initiative could take effect.

There have been numerous calls for mortgage principal reductions since the housing market collapse, but industry leaders claimed their potential effects needed to be carefully analyzed before such an initiative could take effect.

However, Fannie Mae and Freddie Mac recently announced they plan to implement a pilot program to use federal funds to pay down mortgage balances in Nevada. Real estate data indicates that a majority of homeowners in the state are nearly 30 percent underwater, according to a report from the Wall Street Journal.

"We want to see them put that money to good use, and they have had challenges doing so," Federal Housing Finance Agency senior associate director for housing policy Meg Burns told the newspaper. "Using that money to pay down loan balances is perfectly fine with us. We think it's great. It's what this money was distributed to these states for."

Under the program, the government-sponsored enterprises will pay down the balances by as much as $50,000 for homeowners who are current on their payments. Once this is completed, qualified borrowers must then enter the Home Affordable Refinance Program to restructure their loans into more favorable terms.



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