121,000 foreclosed homeowners can buy their homes back

For years, consumer advocates have been pressing lenders who are foreclosing on homeowners whose houses are “under water” (mortgage exceeds current value) to reduce the principle to the current value of the home. The argument is that once foreclosed, the house will be sold at current value anyway, so lender is not losing money by reducing principle (and mortgage payments).

Lenders have resisted this idea, despite suits from people like Massachusetts Attorney General Martha Coakley. But a crack has appeared in the dike. The Wall Street Journal reports that “Mortgage-finance giants Fannie Mae and Freddie Mac will allow homeowners who have been foreclosed upon to repurchase their homes at market value even if they owe more, reversing a policy that prohibited such transactions.”

This will affect 121,000 homeowners, not a large number, but much better than zero. It will not affect future foreclosures unfortunately.

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