Are New Rules For Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) Sold Debt Bad For Taxpayers?

The investors in delinquent debt backed by Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Federal Home Loan Mortgage Corp (OTCBB:FMCC) are handed out with new stringent rules. As per which, these lenders will have to try their best to reach agreement with the borrowers, where foreclosures will be the last resort. While the new rules are favorable to borrowers, it will cost money to taxpayers.

Burden on taxpayers

Further the rules chalked out by the regulator, Federal Housing Finance Agency (FHFA), stipulate investors to extend loan terms, forgive mortgage principal or pursue a short sale before foreclosing. In a case of foreclosure, the investor should consider selling the property to nonprofit groups or first home buyers, who intend to reside in the house instead of investors. It is to be noted that Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) does not offer mortgages but purchase it from lenders only to convert into securities and offer investors. The government-sponsored enterprise (GSE) repays the investor in case of default by either pushing borrower to repay the loan or by foreclosure.

Will save losses

However, in view of the lengthy and costly process, Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) has started selling nonperforming loans directly to investors, who are responsible to recover the mortgage. However, with new rules, these investors will have little room to take drastic steps for home loan recovery. Also, the rules aim to address complaints of housing advocates, who alleged that investors are treating homeowners roughly after buying loans from the government-backed Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA). On the other hand, investors are arguing that such rules will fetch lower prices for the loans and will escalate taxpayer losses.

FHFA Director Melvin Watt said that such measures will create a conducive environment for both borrowers and local communities. He added that it will help cut down the losses of Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and taxpayers eventually. The shares of Fannie Mae were down by nearly 3% to $2.94 during the previous day’s trade.

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