Fannie Mae and Freddie Mac have drawn almost $190 billion in taxpayer aid since they were taken into conservatorship in September of 2008 when investments in risky loans pushed them to the brink of insolvency. They’ve paid a combined $50 billion in dividends back to the U.S. Treasury. The companies own or guarantee $5.2 trillion of mortgages, more than half the outstanding U.S. home loans.
“The government is saying you can just turn in your home and we’re not going to come after you for the money you still owe,” said Peter Schiff, chief executive officer of Connecticut-based brokerage firm Euro Pacific Capital. “Some of these are going to be people who might otherwise have stayed in their homes and kept making payments.”
Gordon, the homeowners’ advocate, argues that while the change may be late, it’s still good policy.
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.
“Fannie and Freddie are finally recognizing that some people are stuck in their homes,” she said. “There are a lot of families who need to move who can’t do it if they’re going to have debt hanging over their heads. There’s no winner when someone is forced to default on their mortgage -- not the investor, not the homeowner, and certainly not the neighborhood,” Gordon said.
The new programs are separate from the government’s Making Home Affordable foreclosure-prevention efforts that require homeowners to be in or near default. The Fannie Mae and Freddie Mac programs don’t require borrowers to be turned down for a modification before applying, as does the Treasury-run Home Affordable Foreclosure Alternative program, or Hafa.