Fannie, Freddie Regulator Rejects Obama's Call for Mortgage-Debt Forgiveness

The independent regulator over the taxpayer-subsidized giants Fannie Mae and Freddie Mac has effectively rebuffed efforts by President Obama to initiate principal forgiveness for “underwater” mortgage holders.
Fannie and Freddie, recipients of more than $160 billion in government bailouts, cannot risk allowing mortgage debt write-downs, wrote Edward J. DeMarco, the acting director of the Federal Housing Finance Agency (FHFA), in a statement released today.
After months of studying the strategy’s impact, the regulator found that “anticipated benefits do not outweigh the costs and risks.”
The potential costs to taxpayers – and concerns that borrowers would stop making payments to secure debt forgiveness – were among the factors cited by DeMarco, for rejecting principal write-downs.
Fannie and Freddie own or guarantee about 60 percent of U.S. mortgages, but the two entities have been under government control since September 2008 to prevent a destabilization of the housing finance industry.
President Obama and many lawmakers have been pressing DeMarco for months to initiate a mortgage forgiveness program as many private mortgage lenders have down to some degree.
Implementing mortgage principal reductions would also present a logistical nightmare for Fannie and Freddie, despite realizing $1 billion in savings to taxpayers as fewer borrowers would default after lowered payments, DeMarco said.
“FHFA concluded that (principal forgiveness) did not clearly improve foreclosure avoidance while reducing costs to  taxpayers relative to the approaches in place today,” DeMarco said.
The FHFA acting director also said current programs in place to help “underwater” borrowers are proving to be increasingly effective, including the so-called HARP 2.0, an expanded version of the original Obama Administration’s Home Affordable Refinance Program.
“These early returns on HARP 2.0 are exceeding expectations,” DeMarco said. “This program provides meaningful and accessible opportunities for underwater homeowners whose mortgages are owned or guaranteed by Fannie Mae or Freddie Mac to refinance into new mortgages with lower interest rates, shorter terms, or both.”
Under the original HARP, lenders refinanced more than 1.1 million mortgages owned or guaranteed by Freddie or Fannie since the program’s launch in 2009. But only slightly more than 110,000 affected underwater borrowers with loan-to-value (LTV) ratios above 105 percent.
The focus of the expanded HARP 2.0 is homeowners current on their payments, but who owe much more on their mortgages than their homes are worth.
The new HARP, which fully launched in May, eliminates the LTV ceiling, reduces certain risk-based guarantee fees, and extends the program’s end date to December 2013.

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