An unnamed investor has agreed to purchase a portion of Freddie Mac's most troubled loans, which will no longer be subject to its rules governing mortgage forgiveness.
The deal opens up the possibility of "principal reductions" for some struggling homeowners, which has proven to be one of the most effective ways to avert foreclosure among borrowers who are upside down on their home loans. Freddie Mac and Fannie Mae, however, for years have refused to grant principal reductions, partially out of fear that the relief would entice homeowners to intentionally default in order to get better deals.
"My assumption is that they're selling the loans because investors have a broader tool kit than they do," says Laurie Goodman, director of the Urban Institute's Housing Finance Policy Center. "Clearly Fannie and Freddie can’t do principal reductions, so it's a way around that."