Underwater Homeowners Demand Action on Principal Reduction

For Immediate Release                                                         

February 10, 2012

CLEVELAND, OH – The historic robo-signing settlement announced with the nation’s five largest mortgage banks was a start in trying repair the damage done by the foreclosure crisis.  However not nearly enough homeowners will get the relief they need to remedy the crippling impact of underwater mortgages.

     Tomorrow underwater homeowners and neighborhood leaders from across northeast Ohio will board buses and take their message to a local bank, demanding serious action on principal reduction.

Date: Saturday, February 11, 2012.

Time: 9:00 a.m.

Location: Meet at ESOP offices

              3631 Perkins Avenue, Suite 4C-S, Cleveland, OH 44114


     Even though one in four borrowers is currently underwater, fewer than 5 percent of permanent HAMP modifications have featured principal reduction. That's largely because Fannie Mae and Freddie Mac have so far refused to offer principal write-downs as part of their modifications, which cuts out about half of the mortgages in the United States. That makes the Federal Housing Finance Agency, or FHFA—which regulates Fannie and Freddie as their government conservator—a big boulder in the path to principal reduction. 

     The major banks along with FHFA need to get serious about principal reduction in order to stabilize families, communities and the housing market.

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Principal Reduction Fact Sheet

  • 10.7 million, or 22.1 percent, of all residential properties with a mortgage were in negative equity at the end of the third quarter of 2011. [i]
  • 2.4 million borrowers had less than 5 percent equity, referred to as near-negative equity, in the third quarter.
  • Negative equity and near-negative equity mortgages accounted for 27.1 percent of all residential properties with a mortgage nationwide in the third quarter. 
  • Negative equity, often referred to as “underwater” or “upside-down,” is the condition in which borrowers owe more on their mortgages than their homes are worth.
  • The extent to which a home is underwater is the single best indicator of whether the homeowner will default.  A homeowner is 150-200% more likely to go into delinquency if he suffers from negative equity. 
  • Negative equity remains very high and renders many borrowers vulnerable when negative economic shocks occur, such as job loss or illness. The nearly $700 billion mortgage debt overhang has touched many corners of the market, and this overhang is holding back the recovery of the housing market and broader economy. [ii]
  • The only way to change the imbalance between the size of the mortgage and the value of the home is to reduce principal.[iii]
  • Even though one in four borrowers is currently underwater, fewer than 5 percent of permanent HAMP modifications have featured principal reduction. That's largely because Fannie Mae and Freddie Mac have so far refused to offer principal write-downs as part of their modifications, which cuts out about half of the mortgages in the United States. That makes the Federal Housing Finance Agency, or FHFA—which regulates Fannie and Freddie as their government conservator—a big boulder in the path to principal reduction.[iv]
  • Freddie Mac and Fannie Mae also purchased or guaranteed 65% of new mortgage originations.
  • The Federal Housing Finance Agency (FHFA) was created on July 30, 2008, when the President signed into law the Housing and Economic Recovery Act of 2008.  The Act gave FHFA the authorities necessary to oversee vital components of our country’s secondary mortgage markets – Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. [v]
  • FHFA's mission is to provide effective supervision, regulation and housing mission oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market. 
  • FHFA’s own analysis found that write-downs for all severely underwater borrowers—those that owe at least 15 percent more on their mortgage than their home is worth—would actually save Fannie and Freddie—and the taxpayers supporting them—about $20 billion over the life of those loans.[vi]
  • Ed DeMarco is the acting Director of FHFA and as such has final say on policy and procedures for Fannie Mae and Freddie Mac.


[i] CoreLogic Third Quarter 2011 Negative Equity Data Shows                         

http://www.corelogic.com/about-us/news/corelogic-third-quarter-2011-negative-equity-data-shows-slight-decline-but-remains-elevated.aspx

[ii] CoreLogic Third Quarter 2011 Negative Equity Data Shows                         

http://www.corelogic.com/about-us/news/corelogic-third-quarter-2011-negative-equity-data-shows-slight-decline-but-remains-elevated.aspx

[iii] NYTimes, To Fix Housing, See the Data, By JOE NOCERA, Published: November 4, 2011

http://www.nytimes.com/2011/11/05/opinion/to-fix-the-housing-crisis-read-the-data.html

[iv] Center for American Progress, Rewarding Homeowners for Good Behavior

http://www.americanprogress.org/issues/2012/02/mortgage_refi.html

[v] Federal Housing Finance Agency

http://www.fhfa.gov/Default.aspx?Page=4

[vi] Center for American Progress, Rewarding Homeowners for Good Behavior

http://www.americanprogress.org/issues/2012/02/mortgage_refi.html