WASHINGTON (AP) -- Fannie Mae will allow more struggling homeowners to sell their homes for less than they owe on their mortgages as part of a plan the mortgage finance company has in the works.
The program by the largest U.S. financier and guarantor of home mortgages addresses homeowners with "upside-down" loans who owe more than their homes are worth. There are now an estimated 9 million U.S. homeowners in that predicament, according to Moody's Economy.com.
Encouraged by regulators and politicians intent on keeping more homeowners from defaulting, Fannie Mae and its smaller government-sponsored sibling Freddie Mac have expanded their roles in the stricken housing market. The companies together must provide as much as $200 billion in new funding for home loans in exchange for getting their risk cash cushions reduced. The government requires them to keep a certain amount on reserve to guard against risk.
Under Fannie Mae's new plan, the firms that collect payments for its mortgages will allow in more cases involving delinquent borrowers so-called "short sales" of homes for less than the amount owed on the loan. Fannie, as the mortgage guarantor, takes a hit on such sales, but can avoid the potentially larger loss from a home going into foreclosure.
"Fannie Mae's first priority is to work with our servicers to keep people in their homes," Jason Allnutt, Fannie Mae's vice president for credit loss management, said in a prepared statement. "If we exhaust our workout options, there are several ways we can help distressed homeowners avoid foreclosure, including negotiating a short sale."
Washington-based Fannie Mae's plan was disclosed this week by one of its executives at a real estate industry conference. It was first reported Wednesday by American Banker, a trade publication.
Brad German, a spokesman for McLean, Va.-based Freddie Mac, said the company recently changed its policy regarding its mortgage servicers in a way that increased approvals of short sales by 90 percent between the fourth quarter of 2007 and the first quarter of this year. Late last year, Freddie Mac gave some of its servicers more authority to accept short sales without prior approval from the company, German said.
Real estate agents, meanwhile, have been frustrated by what they see as lenders' reluctance to approve short sales. A national survey of 3,000 agents conducted in March by research firm Campbell Communications found that, on average, loan servicers take more than four weeks to respond to offers from would-be buyers, often resulting in a sale falling through.
The federal Office of Thrift Supervision, a division of the Treasury Department, has also drafted a plan to help such upside-down borrowers, allowing them to refinance into government-backed loans covering the home's current value. To make up the difference, lenders would receive a special certificate equivalent to the remainder of the balance owed that they could redeem if the home were eventually sold at a higher price.
AP Business Writer Alan Zibel contributed to this report.