Would the FHFA allowance of principal reductions benefit the real estate market?
Yes (74%, 100 Votes)
No (26%, 35 Votes)
Total Voters: 135
Long objecting to principal reductions (a.k.a. cramdowns), the Federal Housing Finance Agency (FHFA), overseer of government owned and sponsored enterprises Fannie MaeA government-sponsored entity operating in the secondary mortgage market. and Freddie Mac (collectively FrannieA collective term for Fannie Mae and Freddie Mac.), now reluctantly views cramdowns as a potentially effective tool to aid negative-equity homeowners.
Recently, the FHFA director, Edward M. DeMarco, gave an analysis demonstrating his continued hesitancy towards cramdowns. However, it now seems he is finally willing to consider the possibility, not simply reject cramdowns outright.
Cramdowns are the process of reducing a home loan’s principal balance to more closely reflect the current fair market value (FMVThe price a reasonable, unpressured buyer would pay for property on the open market.) of the home. A 94% loan-to-value (LTV) ratio (100% minus 6% lost in transactional costs) would allow the owner to sell without netting any proceeds from the sale, as occurs in all shortsale scenarios.
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