Miami Foreclosures Could Slow if Payment Reductions Enacted

April 18, 2012

Our Miami foreclosure lawyers are cautiously optimistic about the results of a recent Fannie Mae and Freddie Mac mortgage analysis, conducted by the Federal Housing Finance Agency (FHFA). streetview.jpg

For those who may be underwater or facing Miami foreclosure from one of these two government-sponsored enterprises, loan modifications may be on the horizon.

As you may recall, the $26 billion settlement reached by five major banks and the attorneys general for 49 states was designed to, in part, require that banks work with homeowners who were underwater on their homes, yet current with their payments, by modifying those monthly mortgage payments to a lower rate. And yet, while Fannie Mae and Freddie Mac mortgage-holders were in the same boat as the others, they were essentially out of luck on the deal.

But that may soon change.

Edward DeMarco, who is the acting director of the FHFA announced at a Brookings Institution speech that reductions on principal for mortgages held by the two government-sponsored enterprises could ultimately save taxpayers nearly $2 billion.

It sounds tricky, and the numbers are complicated, but basically, here's how it breaks down:

The research looked at the situations of about 700,000 borrowers, and based on what they found in those cases, have estimated that Freddie and Fannie could likely lose some $64 billion if loans aren't modified and no other action is taken. That's because if people can't pay their mortgages, they'll have to simply walk away from them. That's not only lives wrecked and homes lost, but taxpayer money down the drain as well.

When the government applies the tripled-incentive payments that would reduce monthly payments under the Home Affordable Modification Program (or HAMP) those losses were mitigated by about $10 billion.

The U.S. Treasury could save about $4 billion in incentive payments to both Freddie and Fannie after factoring in redefaults. In looking at the details of the current market, the analysis discovered that by reducing monthly payments for homeowners who were significantly in over their head on their mortgage could ultimately save Fannie and Freddie nearly $2 billion.

This could have some fairly positive implications for a good chunk of underwater homeowners. It's estimated that there are about 11 million people who are underwater on their homes - that is, they owe more on their property than what it's worth. Of those, about 2.5 million hold Freddie or Fannie mortgages that have a loan-to-value ratio of more than 115 percent. Of those, about 2 million are staying current on their monthly payments.

What that means is there is about 500,000 or 600,000 people who haven't been able to keep up on their payments. These loan modifications likely wouldn't do much for them. What it would do is assist those who are at least trying to maintain their monthly payments.

Now, government analysts say there are some outside factors that could have an impact on the effectiveness of the program. That means it's possible that the benefits to the government could be mitigated, and the whole plan could be scrapped.

Our Miami foreclosure attorneys are crossing our fingers this doesn't happen. But regardless, a struggling homeowners' best bet is always going to be seeking qualified legal representation to thoroughly explore all the options.

If you're battling foreclosure in Miami or the surrounding areas, contact Jacobs|Keeley for a confidential appointment to discuss your rights. Call (305) 358-7991.

Additional Resources:
DeMarco: GSEs would save $1.7bn through HAMP principal reductions, By Jon Prior, Housewire

More Blog Entries:
Miami Foreclosures Not Slowed by Federal HAMP Extension, Feb. 14, 2012, Miami Foreclosure Lawyers Blog