Fannie Mae and Freddie Mac won’t be taking part in the Obama administration’s home mortgage principal reduction program.
That’s bad news for underwater homeowners but cause for rounds of high-fives among executives in the nation’s financial sector.
The setback for homeowners came Tuesday when Federal Housing Finance Agency Acting Director Ed DeMarco bowed to pressure from Wall Street and rejected pleas from the Obama administration to
allow Fannie Mae and Freddie Mac to take part in the principal reduction program.
DeMarco instead opted to go ahead with principal forbearance and other loan modification programs.
Here’s his statement:
“Today, I provided a response to numerous congressional inquiries as to whether the Federal Housing Finance Agency (FHFA) would direct Fannie Mae and Freddie Mac to implement the Home Affordable Modification Program Principal Reduction Alternative (HAMP PRA). After extensive analysis of the revised HAMP PRA, including the determination by the Treasury Department to begin using Troubled Asset Relief Program (TARP) monies to make incentive payments to Fannie Mae and Freddie Mac, FHFA has concluded that the anticipated benefits do not outweigh the costs and risks.
“Given our multiple responsibilities to conserve the assets of Fannie Mae and Freddie Mac, maximize assistance to homeowners to avoid foreclosures, and minimize the expense of such assistance to taxpayers, FHFA concluded that HAMP PRA did not clearly improve foreclosure avoidance while reducing costs to taxpayers relative to the approaches in place today.
“I have also previewed for Congress several housing-related initiatives to strengthen the loss mitigation and borrower assistance efforts of Fannie Mae and Freddie Mac as well as improve the operation of the housing finance market. These initiatives include new and consistent policies for lender representations and warranties, alignment and simplification of the Enterprise short sales programs, and further enhancements for borrowers looking to refinance their mortgages.”
Supporters of the administration write-down plan say the analysis showed pretty clearly that Fannie and Freddie would benefit financially from the program, because of the reduction in the likelihood of defaults after principal reductions.
For one, they say, homeowners would benefit in by saving their homes.
And, alas, TARP money would go toward its intended purpose rather than a remaining bag of money for bailing out banks and funding sky-high CEO salaries.
DeMarco’s critics are also wondering how it is that DeMarco became the guardian of TARP funds.
Count Tim Geithner among them. The Treasury secretary fired off an angry letter to DeMarco Tuesday, asking him to reconsider on barring principal reductions.
DeMarco used “selective numbers” in the FHFA analysis, Geithner charged.
While DeMarco spread gloom among homeowners and White House officials, he brought cheer to the financial sector. “We appreciate FHFA’s prudent and thoughtful approach that considered the full costs and benefits of principal reductions,” said Bob Davis, American Bankers Association executive VP of mortgage policy.
Davis insisted troubled borrowers can be helped and recovery in the housing market encouraged without principal reductions that only “increase the cost to taxpayers at a time when our nation’s fiscal situation is already strained.”
Davis further theorized that mortgage borrowers could be welchers trying to avoid meeting mortgage commitments. “Our nation’s housing policy should first and foremost promote responsible, sustained homeownership, not incentivize borrowers to default on mortgages they are able to afford in search of taxpayer-funded assistance,” the banking association executive said.
In praising DeMarco, Davis said the industry can fix the troubled home mortgage market by “further streamlining the refinance process” and continuing efforts “to expand refinancing to additional borrowers.”
David H. Stevens, president & CEO of the Mortgage Bankers Association, also gave a statement of support for DeMarco’s decision. But his remarks came without the accusatory tone expressed by the ABA’s Davis.
In short, Stevens said, the long term national costs of a widespread principal reduction program “are unlikely to outweigh what may be a short-term gain for a few select borrowers in certain states.”
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