Potential Action from FHFA for Principal Reduction on GSE Loans Seen as Too Late
By Brandon Ivey bivey@imfpubs.com
A principal reduction effort under consideration by the Federal Housing Finance Agency would have a limited impact, according to analysts at the Urban Institute?s Housing Finance Policy Center.
In a research piece published Tuesday, the HFPC said that while consumer advocates made a convincing argument in favor of principal reduction on mortgages serviced for the government-sponsored enterprises, the ?moment for a big impact? from such mods has passed.
?Even with aggressive measures to improve take-up, the impact of any effort at principal reduction through the GSEs will likely be modest,? the HFPC said, noting that increases to home prices have significantly reduced the amount of negative equity outstanding.
The HFPC said that while the GSEs held a total of 448,000 delinquent mortgages as of the end of July, only 58,000 of the mortgages are underwater, and more than half of those loans are less than 15 percent underwater.
If the FHFA implements a principal reduction program that applies to all delinquent mortgages serviced for the GSEs that have negative equity, the HFPC estimated that 14,563 principal-reduction mods would be completed. The analysts noted that the estimate was based on the number of the GSEs? borrowers that went 90 days delinquent between 2011 and 2013. Only about 25 percent of such loans were modified, as many of the borrowers didn?t meet the net-present value test or didn?t accept a loan mod.
