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By Clarece Polke
WASHINGTON, April 14 (Reuters) - The regulator of Fannie Mae and Freddie Mac said on Thursday it would allow the government-controlled mortgage finance companies to cut loan balances for thousands of U.S. borrowers who owe more than their homes are worth.
The Federal Housing Finance Agency said the principal reduction program would be a one-time offering for seriously delinquent borrowers to help them with what the agency director said "could well be their final opportunity to avoid foreclosure."
About 33,000 borrowers are expected to be eligible for the relief, the agency said.
Homeowners have to meet certain criteria to qualify, including having an outstanding principal balance of more than $250,000 and being more than 90 days delinquent on mortgage payments as of March 1.
"The national housing market has significantly improved in recent years but there are still areas of the country where home values have not recovered and negative equity remains a real problem," said FHFA Director Mel Watt.
The program will "allow an opportunity for delinquent, underwater borrowers in these areas to avoid foreclosure and save their homes," he said.
The FHFA previously developed other policies to help homeowners who were underwater in mortgage payments, including allowing Americans to buy back Freddie- or Fannie-backed foreclosed homes at their current market value.
The agency on Thursday unveiled other changes designed to minimize foreclosures, including modifying rules for Fannie Mae and Freddie Mac to sell defaulted loans.
The companies must now instruct their debt buyers to evaluate borrowers for loan forgiveness or principal reduction options. Also, debt purchasers can no longer release and walk away from possessed, vacant properties.
(Reporting by Clarece Polke; Additional reporting by Timothy Ahmann; Editing by Steve Orlofsky and Peter Cooney)