New rules designed to speed relief to struggling California homeowners may not bring quick assistance after all.
That's because Fannie Mae is not yet participating in a $779 million state program to reduce mortgages for Californians who owe more on their homes than they are worth. On May 7, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, announced that it would instruct the two government-controlled mortgage companies to take part in the program. Together, Fannie and Freddie own more than 60 percent – or 3.4 million mortgages – in the state.
But in an interview, Fannie Mae spokesman Andrew Wilson said, "We haven’t put out any guidelines or requirements yet, and we don’t have a timeline."
That statement came as a surprise to the California Housing Finance Agency, which last month changed the rules of the federally funded Keep Your Home California program specifically to satisfy Fannie Mae and Freddie Mac.
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"I do not think Fannie or Freddie felt the need to publish new guidance, as the program is now consistent with existing guidance," said Diane Richardson, program director at the CHFA.
In October, Fannie Mae issued new rules stipulating that banks “must accept" money for principal reductions on mortgages owned by Fannie Mae under the federally funded program, “provided neither the servicer nor Fannie Mae will be required to match” the state’s share. Freddie Mac published similar rules in December.
The California Housing Finance Agency's new rules no longer require banks to match every federal tax dollar contributed to the mortgage write-down program. And it has doubled the maximum amount it will provide to an individual principal reduction from $50,000 to $100,000.
With those changes, the agency believed it would jump-start the moribund program. It had originally projected 25,000 homeowners would benefit from the program, but as of April 30, 221 homeowners received a principal reduction.
Banks say that without participation from Fannie Mae and Freddie Mac, they cannot offer principal reductions on a majority of loans.
“Neither Fannie nor Freddie actually has implemented the program nor produced any guidelines that would allow lenders to participate for their loans,” said Tom Goyda, a spokesman for Wells Fargo. “So, philosophically they have the go ahead, but practically there is no participation at this point.”
Wilson, the Fannie Mae spokesman, agreed. “We’re working to respond to the changes that they made with the program," he said.
But Brad German, a spokesman for Freddie Mac, insisted that banks “have been told how to apply the funds to eligible borrowers.”
Consumer advocates said they are outraged by the confusion.
“It’s irresponsible,” said Kristina Bedrossian, a spokeswoman for the California Reinvestment Coalition, a San Francisco-based organization that represents housing counselors. “How is relief ever going to get to anybody?”
According to a report [PDF] released last month by data analysis firm CoreLogic, 142,000 California homes were lost to foreclosure in the 12 months that ended in April. Nationally, 830,000 homes were lost to foreclosure during that time, one out of every 622 mortgaged homes in America.