Is allowing “insider” short sales fair? Sen. Elizabeth Warren, of Massachusetts, believes it is more than fair to homeowners facing possible foreclosure and losing their homes because they owe much more than what their home is worth.
But the Federal Housing Finance Agency, regulator over Fannie Mae and Freddie Mac, does not allow what they see as a sweetheart deal for borrowers.
Warren, the junior Democrat who made a name for herself as a consumer advocate, posted a plea to Fannie Mae and Freddie Mac’s regulator on her website (FHFA’s Senseless Arm’s-Length Policy on Short Sales) to allow “friends, families, or nonprofit organizations” of underwater borrowers to conduct short sales for the purpose of renting the home to the family that lives there, or re-selling back to the family.
“In some of those short sales, friends, families, or nonprofit organizations are willing to buy the home at fair market value, then work out a rental or re-sale to the family living in it. The mortgage company gets the same amount as in a sale to strangers, but the homeowner has a last-chance to save the family home.
“This is a win-win for both sides-more money for the mortgage lender and a family that saves their home. But the FHFA flatly refuses these deals. The agency’s so-called “arm’s-length” policy means that it will instead demand that the family be moved out and the home be sold at a lower-priced foreclosure sale.”
The FHFA claims that its policy prevents “sweetheart insider deals” that benefit the homeowners at the expense of Fannie and Freddie, Warren added.
But that makes no sense when the house is sold at market value or “when people affiliated with the homeowner put in the highest bid to save the home.”
President Obama and consumer advocates have been trying to get Fannie Mae and Freddie Mac, the two U.S.-subsidized housing-finance giants, to initiate mortgage debt forgiveness for deeply underwater homeowners — but their regulator has refused.
That barrier may not stand in the way much longer if President Obama’s choice to replace Fannie and Freddie’s overseer is confirmed.
The President last month nominated House Financial Services Committee member Mel Watt, D-North Carolina, to replace Edward DeMarco as the director of the Federal Housing Finance Agency, the regulator of Fannie and Freddie, the entities that own or back about 60 percent of U.S. mortgages.
Mortgage debt write-downs, or partial principal forgiveness, is widely considered the best way to bolster economic recovery and ease the foreclosure crisis, once and for all, in this housing market recovery.