Fannie Mae and Freddie Mac will offer seriously delinquent, underwater borrowers a one-time principal reduction, the FHFA announced Thursday.

To be eligible, mortgage holders must have an outstanding balance of $250,000 or less and have mark-to-market loan-to-value ratios exceeding 115%. Other eligibility criteria will apply as well.

The FHFA estimated that some 33,000 owner-occupants who are 90 days or more delinquent as of March 1 will be eligible for the modification. Servicers must solicit eligible borrowers by Oct. 15, 2016.

“This plan will no doubt be viewed by some as too small and too late and viewed by others as too large and unnecessary,” FHFA Director Melvin Watt said when announcing the program. “However, the plan is consistent with [the] FHFA's statutory obligation to maximize assistance for homeowners by providing some borrowers what could well be their final opportunity to avoid foreclosure.”

However, NAFCU officials did not buy Watt's argument.

“It is extremely difficult to envision a scenario where principal reduction will do anything to strengthen the housing market,” NAFCU Executive Vice President of Government Affairs and General Counsel Carrie Hunt said. “NAFCU strongly supports protecting consumers, but again, we believe that principal reduction sets a dangerous precedent. Credit unions have a strong history of doing everything possible to keep members in their homes.”

FHFA also announced it approved further enhancements to its requirements for Fannie Mae and Freddie Mac's sale of non-performing loans in an effort to avoid foreclosures. The enhancement established a requirement for NPL buyers to evaluate borrowers whose MTMLTV ratio exceeds 115% for modifications that include principal reduction or arrearage forgiveness. They also prohibit NPL buyers from unilaterally releasing liens and walking away from vacant properties, and establish more specific proprietary loan modification standards for NPL buyers.

The principal reduction announcement was criticized by House Financial Services Committee Chairman Jeb Hensarling (R-Texas), who said, “The FHFA is helping Washington roll the dice again with another scheme founded on perverse incentives. Principal reductions exacerbate the same moral hazard problems that left taxpayers holding the bag for the government's failures. Further, the FHFA itself previously warned us that principal reduction would be very costly for taxpayers, who already have spent hundreds of billions to bail out Fannie and Freddie.”

Hensarling added that the best foreclosure prevention program ever conceived by the mind of man is a good-paying job created by a healthy, growing economy, not more Washington housing schemes.

“It's time to get off the boom-bust-bailout cycle so working families have greater economic opportunity to achieve financial independence and buy a home they can actually afford to keep,” he said.