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The recent announcement of a new principal reduction program by the Federal Housing Finance Agency (FHFA) may be a classic case of too little/too late, according to new data from RealtyTrac that determined that less than one percent of all seriously underwater properties would qualify for this assistance.
RealtyTrac stated that eligibility in the FHFA’s principal reduction program is limited to seriously underwater properties where the loan-to-value ratio is at least 125 percent. These properties need to be owner-occupied, actively in foreclosure and carrying an estimated loan amount no more than $250,000 on a loan that is guaranteed by Fannie Mae or Freddie Mac.
But out of the 6.7 million seriously underwater properties within the first quarter’s housing market, RealtyTrac estimated that only 33,622, 0.50 percent, meet the FHFA’s requirements. And, in any event, the number of seriously underwater properties during the first quarter fell by 638,000 from a year ago, thus giving the impression that the FHFA program is a solution that is lacking a significant crisis.
“This new principal reduction program is designed to reach a highly targeted group of borrowers, so it’s not surprising that the share of seriously underwater borrowers who potentially qualify is razor-thin,” said Daren Blomquist, senior vice president at RealtyTrac. “To make a more serious dent in the 6.7 million seriously underwater loans, the program would need to be open to homeowners who are not seriously delinquent—given that 98 percent of all seriously underwater loans are not actively in the foreclosure process—or open to investors—given that non-owner occupied properties account for 59 percent of all seriously underwater homes. But there may not be a strong fiscal or political case to help out those two categories of underwater homeowners, particularly in an election year.”