Fannie And Freddie Easing Standards To Take On More Credit Risk Pressured For Principal Reductions 2014

Fannie Mae and Freddie Mac have been receiving pressure for Principal Reductions, including being criticized by Sen. Elizabeth Warren (D-Mass.) during a recent Senate Banking Committee. Warren has expressed outrage over the lack of principal reductions offered by Fannie and Freddie.
Is this a sign that Fannie and Freddie are moving toward loosening the restrictions on principal reductions - or is was this to play to Warrens constituents during the recent elections?

Principal reductions (reducing the mortgage balance) have been done often in recent years - but not since Congress created the Federal Housing Finance Agency to oversee Fannie and Freddie (Principal reductions would be carried out under the administration’s signature Home Affordable Mortgage Program (HAMP).)

Additionally, Fannie and Freddie seem to be moving to ease credit standards and take on increased credit risk. Proposals to lower the minimum down-payment on Fannie Mae and Freddie Mac-backed mortgages at the same time as reducing banks’ exposure to put-back risk may help accelerate the planned modest loosening in mortgage credit conditions.

Fannie Mae will buy low down-payment mortgages and Freddie Mac said it would offer more credit to homeowners, as well.

With the market slowing down, I find no surprises in the above. The more things change, the more they remain the same. Are we heading back into troubled waters? Even though interest rates are low, affordability rates are heading towards records lows:  homes prices just went up too quickly for many buyers. (We're putting together a blog about the lack of affordability and the percentage of cash buyers, so check our blog often for more great information.)

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