Treasury: No Homeowner Bailout Coming

August 5, 2010 No Comments »

bailout

A Treasury spokesman today put to rest rumors government mortgage financiers Fannie Mae and Freddie Mac were set to forgive mortgage debt for millions of American homeowners.

There had been speculation the pair would soon offer principal balance reductions to underwater borrowers, those who owe more on their mortgages than the current value of their homes, so they could refinance and take advantage of the record low mortgage rates.

But Treasury spokesman Andrew Williams told Reuters “the administration is not considering a change in policy in this area.”

Before the statement, investors were dumping mortgage bonds in anticipation they would sustain large losses if a refinancing wave were to come – they have since parred losses.

Some political pundits speculated that the White House would give orders to forgive portions of underwater mortgages backed by Fannie and Freddie “to win back the hearts and minds of voters” before a key midterm election.

Obviously, such a massive principal write-down would cost billions, likely paid for taxpayers, making it an unlikely proposal.

It would probably also prop up home prices that are still unsustainable in many parts of the country, even with mortgage rates as low as they are.

There’s still always the option of easing underwriting requirements so more borrowers can refinance, regardless of how high their loan-to-value is, or how insufficient their income is.

Currently, borrowers with mortgages backed by Fannie and Freddie can refinance with negative equity up to 125 percent LTV, which clearly isn’t high enough...

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