Debt Reduction For Troubled Chicago Homeowners

Frustrating news for troubled Chicago homeowners.  The good news is that there is debt relief from federal and state sources.  The bad news is that Fannie Mae and Freddie Mac will not participate in these programs.  No loans are eligible for these programs if they were bought and held or securitized by Fannie or Freddie, both of which are now under government control and guarantee more than 70 percent of the country’s home loans. Edward J. DeMarco, acting director of the Federal Housing Finance Agency oversees Fannie and Freddie, and believes that principal reduction is bad business, and since both agencies are now “owned”. 

Likewise, FHA and VA loans are also exempt from any debt reduction relief.  Although debt reduction loan modifications have been shown to be more successful than mortgage payment loan modifications, there is a moral hazard that would be created by wider acceptance of the debit reduction modifications.  If I paid $400,000 for my house and am making the payments and keeping current, and you paid $400,000 for your house next door, but are able to reduce your debt by a loan modification, how happy will I be?  Are we risking the entire “promise to pay” system by extending debit reduction modifications?  Perhaps a grace period with a defined expiration date would be the answer. 

Read this article for more info:
http://www.nytimes.com/2011/10/06/business/opposition-from-freddie-and-fannie-stalls-debt-reduction.html?_r=2&ref=todayspaper

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