State AGs to Obama: Fire Fannie, Freddie Regulator for Not Allowing Write-downs

State AGs to Obama: Fire Fannie, Freddie Regulator for Not Allowing Write-downsNine state attorneys general have sent a letter to President Obama and Senate leaders seeking a replacement for the regulator over Fannie Mae and Freddie Mac for his steadfast refusal to allow principal write-downs for borrowers holding Fannie or Freddie mortgages.
Edward DeMarco is the acting director of the Federal Housing Finance Agency, the independent regulator over Fannie and Freddie, which own or guarantee more than 60 percent of U.S. mortgages.
DeMarco’s argument against mortgage principal forgiveness: the potential costs to taxpayers would outweigh any other benefit. He has also cited the potential ripple effect that more homeowners would stop making payments to secure debt forgiveness.
Fannie and Freddie have been subsidized by the federal government since late 2008. The finance companies have sought more than $160 billion in bailouts, but have made progress toward sustained profitability and repayment.
With their letter dated Friday, March 15, the state attorneys general join many lawmakers and consumer advocates in asking for DeMarco’s ouster over his refusal to allow mortgage principal reductions for  millions of “underwater” borrowers who could face foreclosure.
“Unfortunately, under the leadership of Acting FHFA Director Edward DeMarco, Fannie Mae and Freddie Mac remain an obstacle to progress by refusing to adopt policies that will help maximize relief for homeowners,” the state AGs wrote in the letter.
Massachusetts Attorney General Martha Coakley and New York Attorney General Eric Schneiderman were joined by seven other attorneys general in the letter sent to the president, Senate Majority Leader Reid and Senate Minority Leader Mitch McConnell.
Attorneys general who have signed the letter also include Kamala D. Harris of California, Beau Biden of Delaware, Lisa Madigan of Illinois, Douglas F. Gansler of Maryland, Catherine Cortez Masto of Nevada and Bob Ferguson of Washington.
DeMarco’s hardline position that principal forgiveness conflicts with its goal of asset preservation is not supported by reality, the AGs said.
“The FHFA’s current policy actually reduces the value of its holdings portfolio,” the letter reads. “It is far more profitable for any financial institution to hold a portfolio of performing $200,000 mortgages that keeps families in their homes than a portfolio of non-performing $250,000 mortgages headed toward default.”
DeMarco has held the position at the head of the FHFA for more than three years. Over the last year, however, he has clashed with the administration over the issue of write-downs.
Lawmakers pointed out last year that DeMarco seemed to contradict a review by his own agency. He has conceded that write-downs could save Fannie and Freddie an estimated $1.7 billion – according to one analysis.
But he insists 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 year.
DeMarco also argues that current programs to help “underwater” borrowers are proving to be increasingly effective, including the so-called HARP 2.0, an expanded version of the Obama Administration’s Home Affordable Refinance Program.
However, HARP was launched nearly four years ago and completed half of its refinances, or 1.1 million, last year when the FHFA overhauled the stalled effort by removing debt-to-value limits for underwater borrowers, significantly widening eligibility.
Mortgage modifications rely on a “net-present value” (NPV) analysis that serves the purposes of helping borrowers remain in their homes and meeting the economic interests of lenders and investors, the AGs said.
“The positive impact of mortgage modifications which often include principal write-downs continues to be felt on the housing market, economy, and our local communities,” the letter said.
In a letter last month to President Obama, 45 U.S. representatives made pretty much the same argument for the ouster of DeMarco.

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