Fannie Mae Moves to Help Homeowners Avoid Foreclosure

It is no surprise that the real estate market crash and large number of foreclosures can be linked back to the major lenders involved in the mortgage settlement agreement earlier this year.   The settlement agreement, involving 49 state attorney generals and five major lenders (Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, and Ally Financial), included $26 billion to be paid by these lender—over $10 billion has already being paid out.

However, Fannie Mae has recently decided to take matters into their own hands in order to better protect their borrowers from facing foreclosure and San Diego is proposing laws aimed at banks.

Fannie Mae Fires Banks

In an effort to remove its home loan portfolio from 12 banks that Fannie Mae no longer trusts to handle these home loans, the company is paying $1.5 billion to compensate these banks for the loans they are taking away. This fee—deemed as the “breakup fee” by the Huffington Post—is designed to appease the banks as Fannie Mae removes these loans from their care.

Fannie Mae

According to Fannie Mae, the goal is to put these home loans in the hands of companies that they can trust to help homeowners avoid foreclosure. Fannie Mae has reportedly overpaid many of these banks and will save a substantial amount of money over a 5 year period of time if they transfer these home loans away from the banks and to specialty companies.

In the end, this move will help keep homeowners in their home and possible save taxpayer dollars from going to waste.

San Diego Council Targets Banks

Along with Fannie Mae’s recent bank dilemma, a council in San Diego has proposed laws that would require banks to better handle foreclosed properties as well as hold them accountable for reporting lending practice information.  

Specifically, San Diego wants banks to clean up abandoned foreclosure homes that are affecting neighborhoods throughout the city—an issue that has become a problem throughout much of the country.

Along with the foreclosure maintenance proposal, there is a responsible banking ordinance law also being proposed that would require banks to report lending practices including everything from foreclosure information and loan modifications to community investments.

Apparently San Diego is modelling this part of the proposed legislation based off of similar requirement imposed on banks by Los Angeles.

In the end, there are supporters and protestors who cannot agree on whether laws like these truly help improve the current real estate market or just set banks back up for the same situation all over again—being encouraged to lend to those who in the end will be unable to pay their mortgage payments.

One thing is certain: Banks are not out of hot water yet. Many cities, states, and homeowners are still very weary of their relatively recent actions and are taking steps to help ensure this situation does not happen again in the future. The question is, are these proposed laws going to help or harm real estate market recovery?

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.