Sunday, February 3, 2013

Fannie, Freddie To Begin Deed-In-Lieu Program Allowing Eligible Homeowners With On-Time Mortgage Payments To Walk Away From Underwater Homes

Bloomberg reports:

  • Fannie Mae and Freddie Mac will let some borrowers who kept up payments as their homes lost value erase their debts by giving up the properties, helping Americans escape underwater loans while adding to losses at the mortgage giants bailed out with $190 billion of taxpayer money.

    Non-delinquent borrowers with illness, job changes or other reasons they need to move will become eligible in March to apply for a so-called deed-in-lieu transaction that erases the shortfall between a property’s value and the size of its mortgage.

    It follows a change in November that lets on-time borrowers sell properties for less than they owe, known as short sales, wiping out the remaining mortgage debt. Normally, the lenders could pursue people to recoup their losses.
  • The deed-in-lieu transactions, which require homeowners to leave properties in good condition, preserve the value of homes by preventing owners from abandoning them to take a new job or cope with an illness, Gordon said. Vacant and dilapidated real estate drags down values of nearby houses, increases expenses for Fannie Mae and Freddie Mac, and reduces the amount they’ll recover when the property is sold, she said.

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