Fannie Mae ‘Internally” Hailed Principal Reductions: Lawmakers

Fannie Mae concluded years ago that principal reduction has “enormous” potential to save U.S. taxpayers significantly by reducing foreclosures after borrowers default, according to “internal documents” obtained by Democratic lawmakers.
The conservator over both Fannie Mae and Freddie Mac, the government-subsidized companies that own or guarantee most U.S. mortgages, has resisted calls to initiate widespread mortgage principal write-downs to help ease the foreclosure crisis.
Edward DeMarco, acting director of the Federal Housing Finance Agency, which regulates Fannie and Freddie, has conceded that write-downs could save Fannie and Freddie an estimated $1.7 billion – according to one analysis.
But that such a strategy would not amount to a “huge difference-making program” that would rescue the housing market, DeMarco said in a speech last month.
In a pointed letter to DeMarco, however, two House members said internal documents they obtained show that Fannie Mae officials worked with Citibank beginning in 2009 to develop a “shared equity” principal reduction pilot program “that ultimately was terminated for unspecified reasons.
Shared equity allows the lender to share in any profits if the financed home increases in value over time.
The documents show that “Fannie Mae officials strongly supported the concept of principal reduction and fully evaluated its risks and benefits as they obtained the necessary internal approvals to finalize the program,” according to Representatives Elijah E. Cummings and John F. Tierney, both Democrats on the House Committee on Oversight and Government Reform.
The lawmakers said in the letter that they have “serious concerns” about DeMarco’s public statements and previous responses to their requests for more documents.
Cummings and Tierney are asking DeMarco to provide all documents related to principal reduction programs by May 11.

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