Fannie and Freddie denying debt relief

Fannie Mae and Freddie Mac, the two largest mortgage guarantors, refuse to participate in the mortgage debt relief program that could help struggling homeowners remain in their homes. As states are encouraging mortgage lenders to forgive portions of borrowers' home loans, agreeing to match the forgiven debt to a certain amount, loans from the two lenders remain ineligible for the relief efforts. The government-sponsored entities currently control more than 70 percent of the country's home loans.

The New York Times reported Fannie and Freddie's policy against debt forgiveness, also known as principal reduction, has eliminated a possible tool to combat the housing crisis for many borrowers. In response to their lack of participation, state attorneys general have been demanding the two lenders implement debt forgiveness as part of the mulitbillion dollar settlement being negotiated with banks over faulty mortgage practices.

Freddie Mac has also come under fire recently for allegedly ignoring warning signs that mortgage lenders were mishandling mortgages and foreclosures. The Palm Beach Post reported that the Florida law firm associated with the overlooked abuses was fired by Freddie Mac, but its sister company Fannie Mae continues to use the firm's services, citing the expense to transfer files to a new firm is too high.

The news source reported that Fannie Mae expects the transfer of files to cost $5.5 million, and therefore will continue to work with the firm that handles 43 present of the lender's foreclosure cases in Florida. In the Sunshine State, Freddie Mac has $109 billion in unpaid home loan balances, with a delinquency rate of 10 percent, and Fannie Mae has $180 billion in unpaid balances with a delinquency rate of 12 percent.

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