Fannie Mae and Freddie Mac aren’t granting reductions in homeowners’ loan balances, as has been widely noted of late. Nevertheless, some Americans who have gotten into trouble on their mortgages are actually seeing their loan balances cut, as a debate rages in Washington about whether doing so on a wider scale will be effective.
More than 35,000 homeowners received principal reductions from their lender last year, the Office of the Comptroller of the Currency said in a report Wednesday. The total was up about 20% from about 29,000 in 2010. But it was still down 23% from nearly 46,000 in 2009, when banks started to write down loans acquired at a discount from failed institutions.
“Principal reduction modifications can be an effective tool in the overall arsenal,” said Bruce Kruger, the OCC’s lead mortgage expert.
Banks are mainly granting homeowners write-downs if they hold those loans on their balance sheet and tend to do so for loans that are significantly “under water”— meaning that the homeowner owes far more on the property than the home is worth. They are not permitted to do so for loans that they have sold to Fannie Mae and Freddie Mac, the federally controlled mortgage investors.
Read the rest of the article at The Wall Street Journal
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