In a letter sent last Friday to Federal Housing Finance Agency (FHFA) Director Mel Watt, New York Attorney General Eric

Schneiderman is asking that Fannie Mae and Freddie Mac offer more mortgage principal reductions for struggling homeowners who are trying to avoid foreclosure.

According to Housing Wire, New York’s attorney general says that he is “pleased” that the FHFA is now “seriously evaluating” adopting a principal reduction plan, and advocates that principal reduction “should be deployed broadly and quickly to homeowners in desperate need of this relief from the continuing damage caused by the housing crisis.”

“In my role as co-chair of the Residential Mortgage Backed Security working group, I have worked with federal and state partners to bring mortgage modifications and other types of consumer relief to tens of thousands of New York homeowners who are still struggling to avoid foreclosure,” Schneiderman writes. “Yet there are still far too many homeowners suffering from the devastation of the housing crisis, a significant portion of whom have mortgages insured by Fannie Mae and Freddie Mac.”

“As you know, there is significant evidence that homeowners who are seriously delinquent on their mortgages are most likely to avoid foreclosure and remain in their homes when reduction of principal balance is part of a loan modification offer,” Schneiderman writes. “While virtually all of the large commercial single family lenders now include principal reduction in their foreclosure mitigation options for struggling borrowers, both Fannie Mae and Freddie Mac continue to deny this badly needed relief to consumers causing countless numbers of families to remain at risk.”

Schneiderman also writes that the FHFA’s current “asset preservation” policy is both “bad for homeowners and actually counter-productive,” because it reduces the value of the GSEs portfolio assets.

“It is far more profitable for any financial institution to hold a portfolio of performing $200,000 mortgages that keeps families in their homes than a portfolio of non-performing $250,000 mortgages headed toward default,” Schneiderman continues to write.

“I know that you share my commitment to helping families who were victimized by this man-made crisis, and to making sure struggling families are given every opportunity to remain in their homes and their communities,” Schneiderman continues.

“I am encouraged that FHFA recognizes the need to change its policy,” Schneiderman concludes. “I urge you to move swiftly to create and implement a principal reduction loan modification program and to ensure that this relief is provided to as many homeowners as possible, as it is the surest way to help the tens of thousands of families, both in New York State and throughout the country, who desperately need this relief.”

Source: Housing Wire

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