Buy Back Your Home with a Principal Reduction Program

Foreclosed homeowners now have the option to repurchase their old homes back from Fannie Mae or Freddie Mac at today’s fair market value (FMV). Previously, the government-sponsored enterprise (GSEs) only allowed foreclosed homeowners to reacquire their properties upon paying the outstanding mortgage amounts, which were — with rare exception — well above FMV.

The new policy aims to reduce the enterprises’ remaining real estate owned (REO) inventory. To qualify, the homeowner must:

  • be at least three years past foreclosure; and
  • intend to use the home as their principal residence.

Nationwide, Fannie Mae and Freddie Mac hold 121,000 foreclosed homes.

Too little, too late?

A fine step in the right direction — too bad it’s not 2008.

The number of REOs in California’s resale market is nearly back to normal, at a level consistent with the early years of the Millennium Boom. Likewise, California foreclosures peaked in 2008 — nearly seven years ago — therefore, individuals willing and likely to repurchase their old foreclosed homes this late in the recovery are nearly nil.

That being said, this belated form of principal reduction (or cramdown) is better than nothing. It just would have been even more useful if it had come sooner. Especially considering prices which peaked in Q3 2014 (now declining), today’s FMVs are still very high — unless potential purchasers wait several months for prices to bottom.

There are those who balk at the thought of granting cramdowns to “undeserving” homeowners who defaulted on their mortgages. But cramdowns are not about making things more fair —cramdowns are about restoring normalcy to the housing market, particularly reducing those remaining REOs. However, given that seven years have passed since the foreclosure crisis began, the REO market has already nearly righted itself on its own (with many REOs currently in the possession of investors, not end users).


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