Now It’s Fannie Mae, Freddie Mac Resistance to Principal Reduction Nailing Homeowners, Taxpayers
After two years of bewildering futility, John and Linda DeCaro thought they had finally found a way to hang on to their home.
They could no longer afford their mortgage payments and had slipped into delinquency. They could not refinance to take advantage of low-interest rates because they were among the nearly 11 million American homeowners who are “underwater,” meaning that they owed the bank more than their house was worth. Bank of America had already initiated foreclosure proceedings.
Then in the spring of 2011, a nonprofit lender, Boston Community Capital, presented a potential fix, one it has used to aid some 200 underwater borrowers in Massachusetts over the last two years. The bank would buy the DeCaros’ home at market value — about $87,000, which was barely half of their mortgage balance — and then sell it back to them for a little more, providing a manageable loan. Bank of America affirmed the sale price as fair value.
But one powerful obstacle stood in their way: Freddie Mac, the government-controlled mortgage giant, owned the DeCaros’ loan. Freddie has a policy of refusing to approve so-called short sales — those where the purchase price is lower than the mortgage balance — unless the buyer signs a legal document promising not to resell the property to the original homeowner. The document bars the buyer from even renting the home to the initial owner.
In short, the deal could proceed only if the DeCaros gave up the very point of the transaction. They would have to surrender their home.
Linda DeCaro, 46, absorbed this turn of events as if she were being asked to renounce her identity. More than a financial asset, her home was the center of her existence. She and her husband had bought it from her brother almost a decade ago. Her sister lives around the corner. They all grew up in a house two doors down — the same place where her parents still live, where the family gathers for dinner every Sunday evening, and where her 6-year-old daughter often plays while she is at work.
“This is my neighborhood,” Linda DeCaro said. “This is all I know. I would never want to leave here. Everything that I have is here. The church that I was baptized in — that’s the church I belong to. My daughter’s going to the same school that I went to. I don’t sleep because I’m wondering, ‘Where are we going to go?’”