FHFA finally gives cramdowns merit
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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 Mae and Freddie Mac (collectively Frannie), 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 (FMV) 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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About The Author
Carrie B. Reyes
is lead writer in charge of the Real Estate Practice and Due Diligence and Disclosures books.
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While cramdowns will help it may be better to establish that we need not go to a current value to benefit a homeowner; if one owes $400,000 on a home currently valued at $200,000 and we reduce the debt by $100,000 at least the homeowner can now see some ‘light at the end of the tunnel’. When the market does turn it won’t take as many years to establish some equity and taxpayers haven’t footed the bill for as much in losses. I am very active in REO and have said for years that we either need to quit trying to help and let this happen keeping the government out of it, even if banks fail, OR we need to do real modifications and reduce principal. But I don’t really feel we need to reduce based on today’s value, just give the homeowner the feeling that if they hang in rather than going through a short sale or foreclosure, that they will be able to build equity sooner when the market starts swinging upwards.
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no, you can`t do cramdowns. cramdowns result in taxpayer losses, ie taxpayer paying the mortgage cramdown, plus we have to pay our own mortgage. not fair to those who play by the rules and honor
their obligations. you can`t rob peter to pay paul. cramdowns are a slippery slope; who would determine
who gets a writedown, and how much? not fair. why would anybody pay their mortgage then?
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