Fannie Mae and Freddie Mac signed on to participate in Keep Your Home California, a $2 billion foreclosure prevention program intended to make it easier for homeowners reduce prinicipal on their mortgages.
The move could provide a major boost to both the program and usage of the Treasury Department’s Hardest Hit Fund.
California officials dropped a requirement of Keep Your Home California that banks match taxpayers’ funds when homeowners receive mortgage reductions through the program.
“As announced last year, Fannie Mae and Freddie Mac may accept the pay down of mortgage principal funded through a HHF program provided other guide requirements are satisfied," a Federal Housing Finance Agency spokesperson told HousingWire. "In response to this week’s announcement by the California HFA, the enterprises will work with the housing finance agency to apply its new program to enterprise loans.”
The FHFA stressed that the principal reduction is not a write down, something Acting Director Edward DeMarco is reluctant to do, but a payment of principal through the underutilized HHF grant dollars. In other words, Fannie and Freddie are not taking losses.
The special inspector general for the Troubled Asset Relief Program reported that just 3% of HHF’s $7.6 billion fund had been used as of Dec. 31. The Treasury Department meant for the program to provide modifications, short sales, unemployment assistance and principal reduction.
The Treasury Department originally announced HHF in February 2010 as a $1.5 billion program for five state housing finance agencies where home prices dropped 20%: Arizona, California, Florida, Michigan and Nevada. It soon grew through three additional rounds of funding to a $7.6 billion program going to 18 states and the District of Columbia.
The money was meant to develop programs and entice mortgage servicers to provide modifications, short sales, unemployment assistance and principal reduction. Treasury approved the first programs in June 2010 and initiatives in other states roughly three months later.
In April, Freddie Mac, in a letter to its servicers, said mortgage servicers must participate in Hardest Hit Fund transition assistance programs from 18 states and the District of Columbia through short sales and other foreclosure alternatives.
Over the life of the Hardest Hit Fund, which ends in 2017, the state housing finance agencies across the nation estimate helping 459,000 homeowners with some sort of relief.