Good News for Many
Great news for thousands of people who lost their homes to foreclosure. If their loans were backed were backed by Fannie Mae or Freddie Mac they are now eligible to buy back those properties at current market value. Fannie and Freddie required borrowers that wanted to repurchase their homes to be able to buy them for whatever amount they owed on the mortgage, even if that amount was higher than the fair market value of the home.
Fortunately, that policy was terminated by the Federal Housing Finance Agency, which oversees Fannie and Freddie. “This is a targeted but important policy change that should help reduce property vacancies and stabilize home values and neighborhoods,” Melvin Watt, FHFA director, said in a statement.
This change affects 121,000 foreclosed homes owned by Fannie and Freddie as of Nov. 25. But it is not known how many people will be in a position to take advantage of it. Some former homeowners may have moved on, and to repurchase may not be practical for them and some may not qualify for financing.
Some of these financing challenges have to do with Fannie and Freddie's own rules, which require borrowers to wait at least three years after their forclosure before they can again qualify for a mortgage. That rule will not change, which means most of the people interested in a buy-back would have to look for another way of financing, such as loans provided by nonprofits such as Boston Community Capital. BCA, was established in 2010, and it buys homes in Massachusetts, Maryland, Rhode Island and Illinois that are in foreclosure or close to it. Then they resell or rent the homes to the former owners at a price that reflects the property's current market value. “I applaud the FHFA for taking this step and allowing homeowners to have the potential to remain in their homes,” said Elyse Cherry, BCA's chief executive. “This has been a long time coming, and it makes a lot of sense.”
For years, Fannie and Freddie would not allow buy-back arrangements because they amount to a “principal reduction,” which is a form of mortgage relief that reduces the size of a borrower's mortgage that is in trouble. This type of relief has been a necessarily important issue since the housing market unraveled and home prices plunged. Millions of homeowners had the equity in their homes wiped out, and then they were unable to sell or refinance their way out of trouble. Principal reductions are one of the most effective ways to hold off foreclosure in cases like these.
The Obama administration had pressed for Fannie and Freddie to allow such debt reductions through the government's main foreclosure prevention program, which is known as the Home Affordable Modification Program. In 2012, the Treasury Department even offered to pay Fannie and Freddie to participate. But the FHFA, under Watt's predecessor, worried that such relief would led to homeowners to intentionally default on mortgages in a bid to get cheaper loans. The agency warned that such relief could be costly for taxpayers, that had already spent billions of dollars to bail out Fannie and Freddie in 2008.
Last week, when asked at a Senate hearing to take a position on principal reduction, Watt said such mortgage relief was not “off the table.” He said the issue was “perhaps the most difficult he has faced” as FHFA director. But even before the announcement Tuesday, there were indicators that the agency was easing up on its position on buy-backs in particular.
After years of altercation, Fannie recently allowed Jaime and Juana Coronel to buy back their Los Angeles-area home at its fair market value after it went into foreclosure in 2010. The couple had been living there for 20 years when Jaime Coronel's landscaping work went out of business during the recession and they fell behind on their mortgage payments. Fannie let them rent the property for a few years but tried to evict them when it wanted to sell the house.
The couple fought them and asked to buy back the home, a plight detailed in The Washington Post in July. Fannie eventually agreed, and the Coronels purchased the home for $280,000. The deal closed two weeks ago, according to the Alliance of Californians for Community Empowerment, which has been helping the couple.
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Lang Premier Properties are Birmingham Realtors specializing in Oakland County Real Estate. Stephanie is an agent with Lang Premier Properties. See what past clients have to say about Stephanie Lang. Lang Premier Properties looks out for your best interests when you purchase a new custom luxury home. We always recommend working with an experienced luxury real estate agent when buying a new luxury estate.