The U.S. housing chief said there is a “compelling” case for the regulator over Fannie Mae and Freddie Mac to allow principal write-downs for “underwater” homeowners on mortgages they own.
Mortgage write-downs represent a frustrating issue for the Obama Administration as it has attempted to vastly expanded efforts to lower the mortgage balances of deeply underwater borrowers – those who owe more on their homes than their values.
It has become an increasingly vital component of the administration’s campaign to ease the U.S. housing crisis.
Over the last few months, the top U.S. lenders have received 400,000 new applications for such write-down relief for loans not owned by Fannie and Freddie, said Shaun Donovan, Secretary of Housing and Urban Development, during a C-SPAN interview airing this weekend.
In February, white House officials said the government would triple incentive payments under an existing loan-modification program that subsidizes the cost of loan forgiveness – and that it would offer them to Fannie and Freddie if their regulator, the Federal Housing Finance Authority (FHFA), goes along.
But FHFA chief Edward DeMarco has staunchly opposed principal write-downs, citing the need to protect all taxpayers.
“The issue here is about the numbers and the analysis and whether this (principal forgiveness) is not only good for the homeowner but also for the taxpayer,” Donovan said. “And we believe that with the changes we’ve made over the last few months, that the case is compelling (for write-downs).”
As “conservator,” DeMarco’s responsibility is the financial well being of Fannie and Freddie, which have been taxpayer-subsidized since the height of the financial crisis. Combined, the two mortgage financing giants have tapped the U.S. Treasury for more than $170 billion in bailouts to cover quarterly shortfalls.
The two companies own about half of all U.S. mortgages.
The pressure on DeMarco has mounted over recent weeks as Democrats push for the FHFA to subsidize the cost of mortgage loan forgiveness. Consumer advocates also want the regulator to re-focus efforts from taxpayers’ liability to helping underwater borrowers avoid default and eventual foreclosure.