Fannie, Freddie Regulator: Principal Forgiveness Not Our Mandate

The regulator over Fannie Mae and Freddie Mac said principal forgiveness for desperate borrowers, many of whom face foreclosure, would not “accomplish” his mandate to protect all taxpayers who are still bailing out the massive mortgage-financing agencies.
In an interview that aired today on C-SPAN public affairs programming, Edward DeMarco, Acting Director of the Federal Housing Finance Agency (FHFA), addressed the ongoing debate over whether principal write-downs or forgiveness should be one of the options for reviving the housing market and reversing the foreclosure crisis.
But DeMarco’s challenge is in balancing his commitment to assist homeowners while serving in the role as conservator over Fannie and Freddie, both of which are running opened-ended taxpayer bailout tabs that have combined for a total of $169 billion thus far.
At the onset of the financial crisis in the fall of 2008, the two quasi-public companies become wards of the federal government under a unique conservatorship structure.
DeMarco’s regulatory agency has to ensure that borrowers are assisted through mortgage modifications or refinancing. But he also has to make sure that Fannie and Freddie return to some degree of profitability as the Obama Administration and Congress mull an overhaul of the mostly public Fannie-Freddie model of mortgage-financing.
“The idea of reducing principal or forgiving principal for borrowers who are underwater in their mortgages has been widely discussed and has gotten a lot of attention,” DeMarco said. “The conclusion that we’ve reached is that principal forgiveness does not accomplish our conservator mandate relative to the loan modification tools and techniques that we have in place now. “
DeMarco’s interview comes days after the Obama Administration announced an enhanced program to assist borrowers who are “underwater” on their mortgages, owing more than their homes are worth.
Improvements to the two-year-old Home Affordable Refinance Program, known as HARP, target homeowners whose mortgages are backed by Fannie and Freddie. The plan lifts the 125 percent loan-to-value cap on refinancing “underwater” loans for qualified borrowers.
“We think this strikes the appropriate balance between providing assistance to the borrower, but also protecting the American taxpayer standing behind these loans now,” DeMarco said, referring to programs such as HARP, which has already helped 890,000 homeowners who are timely with their payments.
Earlier this week, the FHFA announced a reduction in the projected total bailout for Fannie and Freddie through 2014, mostly due to the two agencies’ improved results with new mortgages approved for purchases or refinancing since the financial crisis.
“The new business coming in is, in fact, profitable and will not result in additional draws from the taxpayer,” DeMarco said. “The draws continuing today are still working through the mortgages that were made principally in the period of 2005 through 2008. We are still working through those difficulties and will be for a bit longer. “

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