Fannie Mae Acknowledges Policy Change That Favors Foreclosure Over Loan Modification

In recent months, banks and financial advisors have been reporting an unusual trend. The federally owned and operated mortgage securities bank, Fannie Mae has been quietly encouraging smaller banks--Bank of America and Chase, for instance-to foreclose on homeowners. This comes at a time where the federal government has been making major inroads in helping troubled homeowners behind on mortgage payments save their homes with programs like HAMP-Home Affordable Modification Program.

Glaring inconsistency at the highest levels of government

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Fannie Mae's new policy to foreclose on homeowners has been called by members of the press and policymakers a glaring contradiction. The federal government, with President Obama's leadership, has been working since early 2009 to help troubled mortgage borrowers save their homes from foreclosure. The Department of Housing and Urban Development-HUD-has seen its role in the federal government evolve into a position of prominence, as serious domestic issues continue to revolve around a pesky US housing market.

Fannie Mae-- a federally owned and publicly traded securities bank that owns and is responsible for hundreds of billions of dollars of mortgages-has been pushing banks to foreclose on homeowners who are more than 12 months behind on their mortgage payments. Many see this as contradictory of a federal government that claims to be working to help homeowners keep their homes amidst continued hardship. Across the nation, many homeowners are plagued by high unemployment and an economy that has been unrelentingly sour and prone to starts and fits over the last half decade.

The Detroit Free Press first reported on Fannie's foreclosure scandal, releasing thousands of confidential documents between Fannie Mae and lenders. The documents, which detailed new rules for lenders working with Fannie Mae, urged lenders to take more dramatic steps with borrowers drastically behind on their mortgage payments. The most astounding on the new rules for banks tacitly implies that lenders stop dragging their feet and foreclosure on seriously delinquent mortgages.

Fannie Mae backbone of US Mortgage System

Fannie Mae has come under serious fire for this new eviction policy as it, too, faced virtual bankruptcy in the last decade. Fannie Mae and Freddie Mac are mortgage-lending giants that were created so other privately held banks could issue more credit. Without Fannie Mae, the US mortgage system would hardly exist as it does today. Fannie Mae has struggled since the housing market collapse in 2007 to remain a solvent and viable way to issue credit to new homeowners-a relationship and practice that has served as the backbone of the US financial system since World War II. Financial experts have raised their eyebrows at Fannie's inconsistency when other federal programs aim to save homeowners from foreclosure. However, Fannie has long been the steward of prudent federal fiscal policy. It may be that time has simply run out for seriously delinquent homeowners.

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